GAME CHANGER - home-globo

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A PUBLICATION OF NYSE EURONEXT FOURTH QUARTER 2009 $4.95 M AG A Z I N E POWERING THE EXCHANGING WORLD WALGREENS EXPANDS ITS REACH CEO ROUNDTABLE: STRATEGIES FOR THE RECOVERY ROSETTA STONE’S CEO SPEAKS OUT A SOFT TOUCH MILD-MANNERED KIMBERLY-CLARK CEO THOMAS J. FALK HAS THE STORIED COMPANY FOCUSED ON INNOVATION INSIDE > > > > GAME CHANGER > > Petrobras CEO José Sergio Gabrielli de Azevedo says massive new oil reserves will transform Brazil’s future

Transcript of GAME CHANGER - home-globo

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A P U B L I C A T I O N O F N Y S E E U R O N E X T

F O U R T H Q U A R T E R 2 0 0 9 $ 4 . 9 5

M A G A Z I N E

POWERING THE EXCHANGING WORLD

WALGREENS EXPANDS ITS REACH

CEO ROUNDTABLE: STRATEGIES

FOR THE RECOVERY

ROSETTA STONE’S CEO SPEAKS OUT

A SOFT TOUCH MILD-MANNERED KIMBERLY-CLARK CEO THOMAS J. FALK

HAS THE STORIED COMPANY FOCUSED ON INNOVATIONIN

SID

E> > > >

GAME CHANGER

> >

Petrobras CEO José Sergio Gabrielli de Azevedo says

massive new oil reserves will transform Brazil’s future

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10 “A company can’t survive without good relationships with its employees.”

— José Sergio Gabrielli de Azevedo, CEO, Petrobras

ABLYNX NV (ABLX) 38, 39

ABOVENET INC. (ABVT) 28, 42

AIRCASTLE LTD. (AYR) 28

ALCATEL-LUCENT (ALU) 5

AMERICAN EXPRESS CO. (AXP) 21

AMERICAN WATER WORKS CO., INC. (AWK) 4

AMSTERDAM MOLECULAR THERAPEUTICS HOLDING NV (AMT) 39

ANADARKO PETROLEUM CORP. (APC) 5

ARTIO GLOBAL INVESTORS INC. (ART) 3

BARNES GROUP INC. (B) 28

BANK OF AMERICA CORP. (BAC) 27

BD (BECTON, DICKINSON AND CO.) (BDX) 34

BP PLC (BP) 14

CAPITAL ONE FINANCIAL CORP. (COF) 21

CATERPILLAR INC. (CAT) 21

CELLECTIS SA (ALCLS) 38, 39

CHEVRON CORP. (CVX) 7, 14, 34

CHINA PETROLEUM & CHEMICAL CORP. (SNP) 15

COACH INC. (COH) 5

CONMED HEALTHCARE MANAGEMENT INC. (CONM) 7

CONTINENTAL AIRLINES INC. (CAL) 21

CONTINENTAL RESOURCES INC. (CLR) 4

CORNING INC. (GLW) 7

COVANTA HOLDING CORP. (CVA) 28

CRUCELL NV (CRXL) 38

CVS CAREMARK CORP. (CVS) 26

DEVGEN NV (DEVG) 39

DEVON ENERGY CORP. (DVN) 7

DEVRY INC. (DV) 44

DUKE ENERGY CORP. (DUK) 34

ECOLAB INC. (ECL) 4

ELI LILLY & CO. (LLY) 41

EXONHIT THERAPEUTICS SA (ALEHT) 38, 39

EXXON MOBIL CORP. (XOM) 12, 34

FEDERAL REALTY INVESTMENT TRUST (FRT) 28

FORNIX BIOSCIENCES NV (FORBI) 39

FRISCH’S RESTAURANTS INC. (FRS) 5

GALAPAGOS NV (GLPG) 38, 39

GENERAL ELECTRIC CO. (GE) 20

GENERAL MILLS INC. (GIS) 34

GENFIT SA (ALGFT) 39

GENOWAY SA (ALGEN) 39

GLAXOSMITHKLINE PLC (GSK) 41

GOODYEAR TIRE & RUBBER CO., THE (GT) 21

HIGHWOODS PROPERTIES INC. (HIW) 28

HILL INTERNATIONAL INC. (HIL) 28

H.J. HEINZ CO. (HNZ) 34

HYBRIGENICS SA (ALHYG) 39

IBM CORP. (IBM) 44

IMS HEALTH INC. (RX) 18

INNATE PHARMA SA (IPH) 39

INTERCONTINENTAL HOTELS GROUP PLC (IHG) 6

ION GEOPHYSICAL CORP. (IO) 6

IPSOGEN SA (ALIPS) 39

JOHNSON & JOHNSON (JNJ) 20, 41

KELLOGG CO. (K) 25

KIMBERLY-CLARK CORP. (KMB) 22

KYOCERA CORP. (KYO) 5

MARATHON OIL CORP. (MRO) 5

MARVEL ENTERTAINMENT INC. (MVL) 21

MCKESSON CORP. (MCK) 18

MERCK & CO. INC. (MRK) 41

MOTOROLA INC. (MOT) 5

NOKIA CORP. (NOK) 5

NYSE EURONEXT (NYX) 3, 28, 42

OCTOPLUS NV (OCTO) 39

ONCOMETHYLOME SCIENCES SA (ONCOB) 38, 39

PETRÓLEO BRASILEIRO SA (PBR) 10

PG&E CORP. (PCG) 34

PHARMING GROUP NV (PHARM) 38, 39

PORTUGAL TELECOM SGPS SA (PT) 7

PROCTER & GAMBLE CO., THE (PG) 20

PROGRESSIVE CORP., THE (PGR) 5

RED LION HOTELS CORP. (RLH) 28

RIO TINTO PLC (RTP) 21

ROSETTA STONE INC. (RST) 3, 36

ROYAL DUTCH SHELL PLC (RDS) 14

SARA LEE CORP. (SLE) 20

SELECT MEDICAL HOLDINGS CORP. (SEM) 3

SOLARWINDS INC. (SWI) 3, 6

SPRINT NEXTEL CORP. (S) 21

STARWOOD PROPERTY TRUST INC. (STWD) 3

THOMSON REUTERS CORP. (TRI) 37

THROMBOGENICS NV (THR) 39

TIGENIX NV (TIGN) 38, 39

TRANSGENE SA (TNG) 39, 40

VERIZON COMMUNICATIONS INC. (VZ) 34

VIACOM INC. (VIA) 3

VISA INC. (V) 3

VIVALIS (VLS) 38

WALGREEN CO. (WAG) 16

WAL-MART STORES INC. (WMT) 18

WALT DISNEY CO., THE (DIS) 21

XEROX CORP. (XRX) 34

THE NYSE MAGAZINE INDEX

FEATURESG A M E C H A N G E R

Petrobras’ CEO says that new oil

discoveries beneath the ocean floor off

Brazil have the company poised to be

a global energy leader.

O N A R O L L

New Walgreens CEO Greg Wasson is

diversifying the century-old drugstore

chain’s business model to include all

health needs.

A S O F T T O U C H

Mild-mannered Kimberly-Clark CEO

Thomas J. Falk keeps the tradition of

innovation alive at the storied company.

T H E R O A D T O R E C O V E RY

In a roundtable discussion, nine CEOs

share strategies and ideas for becoming

part of the economic solution.

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DEPARTMENTS

>>

C O N T E N T SF O U R T H Q U A R T E R 2 0 0 9 V O L U M E 9 I S S U E 4 >>>>>>

M A G A Z I N E

nyse magazine is published by NYSE Euronext in conjunction with Time Inc. Content Solutions. © 2009 NYSE Euronext. All rights reserved.

NYSE Euronext, New York Stock Exchange, NYSE, the NYSE logo and nyse magazine are trademarks or service marks of NYSE Euronext. Other trademarks and service marks owned by NYSE Euronext may be used by NYSE Euronext from time to time. All other trademarks, trade names, service marks and logos used in this publication are the property of their respective owners.

Neither NYSE Euronext, its subsidiaries, its affiliates, officers, directors, employees, agents or licensors nor Time Inc. Content Solutions makes or has made any recommendation, endorsement or representation regarding any services provided, products manufactured or sold, or securities issued by any of the companies identified in this publication. No statements contained in articles in this publication should be attributed to NYSE Euronext, its subsidiaries, its affiliates, officers, directors, employees, agents or licensors or Time Inc. Content Solutions. Please seek the advice of professionals, as appropriate, regarding your evaluation of any specific security, index, report, opinion, advice, service or product.

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CONTENT SOLUT I ONS

U P D A T E

From NYSE Euronext CEO

Duncan Niederauer

U P F R O N T

A blanket to reduce infections,

sustainable hotels, water conservation,

dividends in a downturn and more

C E O Q & A

Tom Adams, president and CEO,

Rosetta Stone Inc.

S E C T O R S P O T L I G H T

European biotechnology

I N S I D E N Y S E E U R O N E X T

Twin data centers

F O R S T A K E H O L D E R S

Daniel Hamburger, president and CEO,

DeVry Inc.

NYSE MAGAZINE IS PUBLISHED BY THE NYSE GROUP, INC. IN CONJUNCTION WITH TIME INC. CONTENT SOLUTIONS © 2009 NYSE GROUP, INC. ALL RIGHTS RESERVED

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>>

U . S . S E C R E T A R Y O F S T A T E Hillary Rodham Clinton’s recent visit underscores the

importance of strong capital markets to the global economy. We were honored that Secretary

Clinton and other world leaders chose to visit the NYSE while attending the 64th session of

the U.N. General Assembly in New York this past September. Their presence at the NYSE

reinforced the idea that now is the time for government and corporate leaders to move forward

collectively and constructively toward a sustainable global economic recovery.

At a recent NYSE roundtable, nine CEOs, including myself, discussed how corporate lead-

ers can become part of the economic solution. Excerpts begin on page 28, and more are

posted on nysemagazine.com, where you will also fi nd Web-exclusive CEO commentary on the

importance of corporate responsibility during the economic downturn. Our First Quarter 2010

issue, which will be available in January and at the World Economic Forum in Davos, Switzer-

land, will take an in-depth look at corporate sustainability initiatives worldwide.

Despite a tough climate, we’re making steady progress on the IPO front, including the

listings of Rosetta Stone (see the CEO Q&A on page 36) and SolarWinds (see page 6). Also

among the signs of progress are the listings of Artio Global Investors, the fi rst fi nancial ser-

vices IPO since 2007; Starwood Property Trust, the largest REIT offering of the year; and

Select Medical, arriving more than a year after fi ling the initial documents. Also debuting on

the NYSE are Banco Santander Brasil, Hyatt Hotels, Dole Food and Dollar General.

Meanwhile, our NYSE TechnologiesSM businesses are taking root around the world. We

continue to work with some of the largest fi nancial institutions, global trading venues and

best-of-breed technology partners to implement the most comprehensive set of connec-

tivity, trading and exchange solutions available. Helping to drive effi ciencies for our custom-

ers and our global exchange group are innovations such as our new data centers being

constructed in the New York and London metro areas (learn more on page 42).

In this rapidly changing environment, we continue to be an effective advocate for our listed

companies. For example, we recently formed an independent advisory commission to look at

strengthening U.S. best practices for corporate governance and the proxy process. We have

represented issuer views on short selling, tax policy, travel visas, venture capital investment,

regulatory reform and more with regulators, legislators, the press and the public at large.

Amid these efforts we remain focused on our most valuable resource: our people. We

were excited to welcome Dominique Cerutti as Deputy CEO and Global Head of Technology,

succeeding Jean-François Théodore, who will retire at year’s end. Dominique’s excep-

tional leadership skills in fi nance and technology will be extremely benefi cial to our

company — and our customers — as we continue our evolution in 2010 and beyond.

ON SEPT. 21, U.S. SECRETARY OF STATE HILLARY RODHAM CLINTON MADE HER FIRST VISIT TO THE NEW YORK STOCK EXCHANGE AS THE NATION’S CHIEF DIPLOMAT AND INITIATED THE DAY’S TRADING BY RINGING THE OPENING BELLSM.

“NOW IS THE TIME FOR LEADERS TO MOVE FORWARD COLLECTIVELY TOWARD A SUSTAINABLE RECOVERY.”

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F R O M N Y S E E U R O N E X T C E O D U N C A N N I E D E R A U E R

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain articles about NYSE Euronext in this magazine may contain

forward-looking statements, including forward-looking statements

within the meaning of the Private Securities Litigation Reform Act of

1995. Such forward-looking statements include, but are not limited to,

statements concerning NYSE Euronext’s plans, objectives, expectations

and intentions and other statements that are not historical or current

facts. Forward-looking statements are based on NYSE Euronext’s current

expectations and involve risks and uncertainties that could cause ac-

tual results to differ materially from those expressed or implied in such

forward-looking statements. Factors that could cause NYSE Euronext’s

results to differ materially from current expectations include, but are not

limited to: NYSE Euronext’s ability to implement its strategic initiatives,

economic, political and market conditions and fl uctuations; government

and industry regulation; interest-rate risk and U.S. and global competi-

tion; and other factors detailed in NYSE Euronext’s reference document

for 2008 (“document de référence”) fi led with the French Autorité des

Marchés Financiers (Registered on April 28, 2009 under No. R. 09-

031), 2008 Annual Report on Form 10-K and other periodic reports

fi led with the U.S. Securities and Exchange Commission or the French

Autorité des Marchés Financiers. In addition, these statements are

based on a number of assumptions that are subject to change. Accord-

ingly, actual results may be materially higher or lower than those project-

ed. The inclusion of such projections herein should not be regarded as

a representation by NYSE Euronext that the projections will prove to be

correct. Articles in this magazine speak only as of Sept. 25, 2009. NYSE

Euronext disclaims any duty to update the information herein.

DUNCAN ’S TOP F I VE

PEER TO PEER Our listed companies are concerned about legislation reaching too far into the boardroom. In response, we formed an advisory group to examine U.S. governance best practices and the proxy process.

MARKET TREND The IPO market is the strongest we have seen in two years, and the pipeline is robust. So far this year, NYSE IPOs have raised about $7 billion.

NYSE EURONEXT IN I T IAT I VE Partnering with Viacom’s MTV on Movers & Changers, a social entrepreneurship initiative, as well as our efforts on financial literacy with Viacom, the Gates Foundation, Visa and others.

MEMORABLE QUOTE FROM RECENT TRAVELS Investing in a well-educated workforce may be the most important step to helping the U.S. remain a global leader.

UPCOMING TR IP To Hong Kong, Shanghai and Beijing to meet with listed companies and prospects.

U P D A T E

Sincerely,

NY9.4_p3_Update_F2.indd 3NY9.4_p3_Update_F2.indd 3 10/19/09 4:56:40 PM10/19/09 4:56:40 PM

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S O C I A L R E S P O N S I B I L I T Y

THE SOLAIRE'S ROOFTOP GARDEN PROVIDES AN OASIS

FOR CITY DWELLERS.

With Manhattan reaching a population of

1.6 million, AMERICAN WATER WORKS CO. INC.

(AWK) wanted to create sustainable water man-

agement solutions for the city that never sleeps.

As one of its latest green initiatives, the com-

pany designed an innovative wastewater recy-

cling facility for state-of-the-art residential

buildings in New York City.

According to American Water, the Solaire

luxury development was the fi rst of fi ve green

high-rise buildings in Manhattan’s Battery Park

City to use the company’s wastewater recycling

system. “As the [nation’s] fi rst green residential

building, the Solaire demonstrates how envi-

ronmental and sustainable development con-

cepts can be incorporated into future projects,”

says Tim Davies, president and CEO of Ameri-

can Water’s Applied Water Management unit.

Th e recycling system reuses 25,000 gal-

lons of wastewater per day, Davies notes. Th e

advanced fi ltration system separates waste

from water and uses ultraviolet light to kill

bacteria. Water is collected and supplied on a

need-only basis to conserve energy.

Th e facility reuses water throughout, from

fl ushing toilets to fi lling the cooling tower.

With this innovative technology, American

Water says, the Solaire conserves up to 9 mil-

lion gallons of water each year and consumes

35 percent less energy than a traditional

high-rise, and Battery Park City’s residential

systems have saved an average of almost 10

million gallons of potable water per building

per year. — Shama Hussain CO

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An Eco-Friendly High-Rise

Blanketing Infection

Some 1.7 million health-care-associated infec-

tions, or HAIs, occur in U.S. hospitals each year,

according to the Centers for Disease Control

and Prevention. HAIs suppress immunity, pro-

mote other infections and may cause death, the

CDC reports, resulting in nearly $20 billion in

annual excess health-care costs.

A leading cause of HAIs, says St. Paul-based

ECOLAB INC. (ECL), is hypothermia, a common

response to injury-induced shock and to general

anesthesia. Th e company says its ChillBuster

can address this problem. The lightweight,

water-resistant blanket comes with disposable,

infection-impervious covers and a re chargeable

four-hour battery. Lying fl at on the patient, it

quickly heats to 105°F and delivers rapid

response without burn risk to the patient or

bystanders, the company adds.

Paul Chaffin, vice president and general

manager for Ecolab’s North American health-

care division, says Ecolab is supplying the prod-

uct to the U.S. health-care market aft er having

received FDA approval in November 2007.

“ChillBuster is just one of the innovative

products we off er that helps reduce HAIs,” Chaf-

fi n says. “We also support our products with

comprehensive training and education, helping

maximize patient outcomes and reduce costs for

health-care providers.” — Jeff Heilman

TICKER TAKES [ENERGY]

N E W S A N D T R E N D S F R O M T H E G L O B A L B U S I N E S S C O M M U N I T Y

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CONTINENTAL RESOURCES INC. (CLR) CAN DRILL A WELL SO ACCURATELY

IT'S LIKE SHOOTING A DRILL BIT INTO A BASKET FOUR MILES AWAY.

ECOLAB’S CHILLBUSTER IS CUTTING DOWN ON HEALTH-CARE-ASSOCIATED INFECTIONS.

P R O D U C T S & S E R V I C E S

All Ticker Takes facts obtained from respective listed companies.

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M A R K E T I N G

Going With the Flo

To help demystify the auto insurance shop-

ping experience, PROGRESSIVE CORP.’s (PGR)

TV commercials show an energetic salesper-

son named Flo helping customers at a bright

and open superstore representing “an insur-

ance heaven.” “People often see insurance

shopping as something painful,” says Chris

Owen, Progressive marketing business leader,

“so we wanted to create something familiar,

like grocery shopping.”

As Owen explains, Flo’s quirky personal-

ity refl ects Progressive’s brand image through

her vitality and dynamism. “Progressive isn’t

a boring, traditional auto insurance com-

pany,” he says. “We all have a lot of energy,

and her character refl ects our culture.” Owen

notes that while Progressive’s strong suit is its

competitive rates, customers also receive ser-

vices for which they don’t have to pay extra,

including pet injury coverage and concierge

claims service.

Th e commercials began airing in January

2008. Progressive also runs print and online

ads that include Flo, all of which are part of

the “Superstore” campaign.

Th e company says it has seen an increase

in the number of customers because its con-

sistent advertising strategies have built recog-

nition faster. Adds Owen: “Having a well-known

brand puts you on the top of consumers’ list of

companies when they consider shopping for

car insurance.” — S.H.

Commerce With the Wave of a Phone

Imagine walking by an ad for a sports team and

being able to purchase tickets on the spot.

Touchatag, an Antwerp, Belgium-based unit of

ALCATEL-LUCENT (ALU), is a technology venture

seeking to make that happen. Th e venture aims

to make an open interface for the creation of a

wide range of applications for consumers to

access, says Anthony Belpaire, general

manager of Touchatag.

Wave a smartphone at an

ad, and the mobile browser

automatically loads the Website to purchase

tickets or gets a live representative on the line to

take an order, Belpaire explains. With a built-in

radio-frequency identifi cation (RFID) reader or

a 2-D bar-code reader to scan the Touchatag

marker from 1.6 inches away, users can make

purchases, watch related videos or access more

information on the phone, Belpaire says. Some

phones from NOKIA CORP. (NOK), MOTOROLA

INC. (MOT) and KYOCERA CORP. (KYO) come

with built-in RFID readers, and any phone with

a built-in camera and the installed Touchatag

application can scan 2-D bar codes,

Alcatel-Lucent reports. “With a

phone, you can link to a whole set

of contactless applications,” he says.

Belpaire adds that more than

3 million mobile phones in the

U.S. now have the capability to read Touchatag

bar codes, compared with 60 million phones

in Japan. By 2012, he says, more than 40 per-

cent of U.S. mobile phones will have the tech-

nology. — Brian T. Horowitz

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D20THE PERCENTAGE O F U. S. H O U S E H O L D S T H AT W E R E W I R E L E S S - O N LY IN 2008, UP FROM 8.4 PERCENT IN 2005, ACCORDING TO THE W IRELESS ASSOC IAT ION FOR THE WIRELESS TELECOMMUNICAT IONS INDUSTRY

Mid-2009 hardly seemed the optimum time to

begin paying dividends, but not for COACH INC.

(COH). Th e luxury retailer initiated a 30¢-per-

share annual dividend in April. “Th e case for

dividends,” says Chairman and CEO Lew

Frankfort, “included attracting new investors,

providing incentive for existing shareholders to

revisit the stock and increasing the attractive-

ness of Coach stock to balanced-fund manag-

ers given the low bond yield environment.”

Frankfort points out that Coach’s stock rose

15 percent on the day of the announcement.

Whereas many companies cut dividends this

year, others, such as FRISCH’S RESTAURANTS INC.

(FRS), which operates Big Boys and Golden

Corrals primarily in the Midwest, maintained

them. “We’ve paid dividends since the day we

went public in 1960,” says Vice President of

fi nance and CFO Donald Walker. “We’ve been

profi table every year during that period and

considered it our duty to continue paying them

once we started.” — Sharon Kahn

I N V E S T O R S

Dividends in a Downturn

T E C H N O L O G Y

THE QUIRKY CHARACTER FLO HELPS MARKET PROGRESSIVE’S

SERVICES.

A TYPICAL ANADARKO PETROLEUM CORP. (APC) NATURAL GAS

WELL PRODUCES AS MUCH ENERGY AS 46 ACRES OF SOLAR PANELS.

MARATHON OIL CORP.’S (MRO) REFINERY EXPANSION IN GARYVILLE, LA.,

ERECTED 1.5 MILLION LINEAR FEET, OR MORE THAN 300 MILES, OF PIPE.

TOUCHATAG’S RFID READER AND MARKERS

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TO LOCATE HYDROCARBONS OFFSHORE, ION GEOPHYSICAL CORP. (IO) PROVIDES HIGH-END SEISMIC SERVICE PROVIDERS WITH MORE

THAN 100 KM OF CABLES MORE THAN ONE KM WIDE AND 10 KM LONG — RIVALING THE SIZE OF MANHATTAN — TO TOW BEHIND A VESSEL.

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This company started as a single store in San Francisco in 1969. Its first international store opened in London in 1987.

In 2008 it acquired a women’s activewear company.

In celebration of its 40th anniversary this year, the company’s signature product was permit-ted to be worn on the NYSE trading floor for the first time ever.

A L L C L U E S P R O V I D E D B Y T H E C O M PA N Y. S E E A N S W E R AT N Y S E M A G A Z I N E . C O M / C O R P O R AT E I D .

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Innovation Hotel

Replacing a regular lightbulb with a compact

fl uorescent one will cut half a ton of carbon

dioxide from the atmosphere during that bulb’s

life, says David Jerome, senior vice president of

corporate responsibility for global hotel com-

pany INTERCONTINENTAL HOTELS GROUP PLC

(IHG), which reported 2008 revenues of $1.85

billion from property brands that include Holi-

day Inn and Crowne Plaza. Replacing lightbulbs

in its more than 4,200 hotels is just one of the

eff orts IHG says it is exploring in its drive to be

an environmental leader in the tourism industry.

Th e company plans to capture ideas through

Innovation Hotel, a new interactive Website

that lets users suggest how hotels can get more

green and also provide feedback on others’ ideas.

IHG executives review comments from the site,

Jerome says, and make evaluations based on two

key criteria: ROI and customer acceptance. Th e

best ideas will be released to the company’s hotel

owners and managers through a new soft ware

system called Green Engage, explains Jerome.

IHG reports that trials have shown potential

energy savings of up to 25 percent per hotel. If

fully adopted by all IHG hotels, the savings in

annual operational costs could be as much as

$200 million companywide, explains IHG CEO

Andrew Cosslett. “Th e real impact comes from

doing more than just one or two of those things,

and doing them across 4,200 hotels,” he says.

“Th at’s how we’re going to make a real and sus-

tainable impact.” — Rebecca McReynolds

50THE PERCENTAGE BY WHICH A BUILDING’S D A I LY T E M P E R AT U R E FLUCTUAT ION CAN BE REDUCED THROUGH GREEN FACADES S U C H A S C L I M B I N G P L A N T S , A C C O R D I N G TO I N T E R C O N T I N E N TA L H O T E L S G R O U P

S O C I A L R E S P O N S I B I L I T Y

A Customer Connection Money Can’t Buy

“Goodwill comes back in tangible ways,”

insists Kenny Van Zant, senior vice president

and chief product strategist at SOLARWINDS

INC. (SWI). Recognizing that times are tough,

the Austin-based network-management soft -

waremaker, which was the fi ft h IPO on the

U.S. markets this year, implemented a pro-

gram called SLED, which stands for

“state, local, education,” to give away

10,000 copies of the company’s Standard

Toolset specifi cally for government and

educational agencies. “We saw economic

pressure on the public sector and felt we

could help our customers — engineers at

these organizations,” Van Zant says.

Th e Toolset, a $199 retail value, allows an

individual engineer working at a desktop

computer to monitor the health of a small net-

work. Between March and late summer, Solar-

Winds had given away thousands of copies

aft er alerting would-be users via e-mail, Web-

casts and resellers who passed the word along.

“Th e communication campaign was rela-

tively cheap,” notes Van Zant. “Th e bigger price

was opportunity costs — the value of the soft -

ware that we plan to give away.”

Van Zant says the marketing approach intro-

duces new users to the company and

ties in existing ones, some 85,000 cus-

tomers in more than 170 countries who

rely on the company’s soft ware. Solar-

Winds says it hopes that SLED will pro-

vide a customer connection that money

can’t buy. Numerous engineers have signed on

from various state and local agencies, and Van

Zant says he hopes they will remember Solar-

Winds when they want to upgrade or have a

need for the company’s other products. “When

their budgets are restored,” he says, “we hope

they remember us.” — S.K.

S U S T A I N A B I L I T Y

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D25MILLION THE NUMBER OF MULTIPLE-DWELLING UNITS IN THE U.S. THAT COULD BENEFIT FROM CLEARCURVE FIBER-OPTIC CABLE, WHICH CAN BEND TO 5 MM AND AVOID THE POWER LOSS OF LESS-BENDABLE CABLE, ACCORDING TO CORNING.

Teamwork in Fiber Optics

In an effort to implement an innova-

tive, aff ordable fi ber-optic cable network

across Portugal to meet growing demand,

PORTUGAL TELECOM SGPS SA (PT) says it

began using CORNING INC.’s (GLW) ClearCurve

fi ber-optic cable in its Next Generation Access

fi ber-optic network. Th e deal, made directly

between Portugal Telecom CEO Zeinal Bava

and Corning CEO Wendell P. Weeks, goes

beyond a typical buyer-supplier relationship

because Corning will help with the auditing and

testing of the networks, says Clark Kinlin, presi-

dent and CEO of Corning Cable Systems.

Introduced in 2008, ClearCurve optical fi ber

is hundreds of times more bendable than stan-

dard single-mode fi ber, explains Kinlin. He says

ClearCurve allows Portugal Telecom to install

the cable in tough environments, such as apart-

ment buildings. “You can bend it and staple it in

a forgiving manner, unlike traditional fi ber,” says

Kinlin. Th is, he adds, will help PT reach its goal

of providing fi ber-optic cable to up to 1 million

households in Portugal by the end of the year.

“Portugal Telecom is future-oriented and

can see the value in innovation,” Kinlin says,

adding that ClearCurve will enable delivery of

higher speeds of broadband Internet and higher-

quality HDTV to its subscribers. “Our main

goal is to off er high-quality, cost-competitive

services based on innovative and reliable fi ber-

based solutions,” says Bava. — B.T.H.CO

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When CONMED HEALTHCARE MANAGEMENT INC.

(CONM), a provider of correctional health-

care-management services, listed on NYSE

Amex this summer, the event proved to be a

great milestone in the company’s history,

says Conmed Chairman and CEO Richard

Turner, PhD. Listing on the NYSE family of

exchanges increased the company’s visibil-

ity and the value to its shareholders, he adds,

noting that investors who previously would

not invest in OTC bulletin-board compa-

nies have taken an interest.

Turner believes that having a dedicated

market maker is one reason sophisticated

investors have taken the company more seri-

ously since the transfer. “It was an affi rmation

that the company had migrated from a

startup operation into a larger organization,”

he says, “instilling tremendous pride in all of

our employees.”

Th e transition from the OTC market to

NYSE Amex was smooth, and steps were taken

in an orderly process as Conmed conformed

to the standards of listing on NYSE Amex.

“We got a lot of support from the Exchange

in terms of encouraging us to move through

the process,” says Turner. In celebration of its

transfer, Conmed employees rang Th e Open-

ing BellSM in July.

Conmed is among the fi rst companies to

list on an NYSE exchange under a four-letter

trading symbol. From 1867, companies listed

on the NYSE and NYSE Euronext markets

traded only under one-, two- or three-letter

ticker symbols. — S.H.

CONMED EXECUTIVES RING THE OPENING BELLSM TO CELEBRATE THE COMPANY’S LISTING ON NYSE AMEX.

CHEVRON CORP. (CVX) HAS INSTALLED 125,000 SOLAR PANELS IN

CALIFORNIA, EQUIVALENT TO TAKING 4,500 CARS OFF THE ROAD.

IN 2008 DEVON ENERGY CORP. (DVN) PRODUCED

940 BILLION CUBIC FEET OF NATURAL GAS.

A Smooth Transition

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T F I N D I N G L I Q U I D I T Y

Approved NYSE floor brokers better

serve their customers under a rule

provision that allows them to search

for liquidity in additional market-

places. For example, when one of

Armstrong’s customers wanted to

sell a stock that had been delisted

from NYSE, he was able to seam-

lessly represent his customer in

alternative trading venues.

T H E C H A N G E Allows approved NYSE firms to operate full-service trading desks across multiple venues and asset classes, including options, OTC and foreign securities, directly from the NYSE floor

T H E R E A S O N To provide greater customer choice

T H E I M P A C T Nearly 50 percent of NYSE member firms operate in this manner, enriching the execution experience for their customers.

OPEN FLOOR

I CAN ROUTE AND ACCESS LIQUIDITY IN VARIOUS MARKETPLACES WHILE MAINTAINING AN ACTIVE POINT-OF-SALE PRESENCE AT THE NYSE.”

PATRICK ARMSTRONGMANAGING DIRECTOR, PRIME EXECUTIONS INC.

C O L L A B O R A T I O N

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GAME CHANGER

P E T R O B R A S C E O J O S É S E R G I O G A B R I E L L I D E

A Z E V E D O S A Y S T H E O I L T R A P P E D U N D E R M I L E S O F W A T E R ,

R O C K A N D S A L T O F F T H E C O A S T O F B R A Z I L I S A B O U T T O

T R A N S F O R M T H E C O M P A N Y — A N D T H E C O U N T R Y — I N T O A

W O R L D - C L A S S E N E R G Y L E A D E R .

» B Y S U S A N C A M I N I T I

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» P H O T O G R A P H B Y P A U L O F R I D M A N

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O S É S E R G I O G A B R I E L L I D E

Azevedo, CEO of the state-controlled

Brazilian oil company Petrobras —

PETRÓLEO BRASILEIRO SA (PBR) — is

a deep thinker. He’s obsessed with the

billions of gallons of oil that exist

beneath miles of water, rock and salt

about 180 miles off the coast of Brazil

and how reaching it can change the world.

In New York City to receive an award from

the Brazilian-American Chamber of Commerce,

he devotes his day largely to meetings, inter-

views and a press conference. Each event is

designed to explain the company’s technolog-

ical, fi nancial and political plans for managing

the largest oil discoveries in the Western Hemi-

sphere in more than 25 years.

Before heading off for dinner, Gabrielli, 60, a

tall, strapping fi gure with a closely cropped gray-

ing beard and stylish glasses, talks about leading

Petrobras at a pivotal time in its 56-year history.

“It’s exciting to be CEO at a moment when we’re

about to make a big jump to a new model and

scale worldwide,” he says confi dently. Sure, but

does it make him a bit nervous? His answer

comes without hesitation: “Yes, yes it does.”

Th ese are heady times for Petrobras. Th e pre-

salt oil drilling (so named because the reserves

are trapped beneath thousands of feet of ocean

water and another 16,000 feet of rock and salt)

that the Rio de Janeiro-based company is now

undertaking defi nes the new frontier of ultra-

deepwater exploration, according to Gabrielli.

He adds that it is risky, technologically challeng-

ing and incredibly expensive, but potentially —

and explosively — lucrative. Tupi, which in 2006

became the company’s fi rst pre-salt oil fi eld dis-

covery, contains 5 billion to 8 billion barrels of

oil, Petrobras estimates. Nearby fi elds may con-

tain billions of barrels more. Oil-rich Venezuela,

by comparison, has proven reserves of nearly

100 billion barrels, industry analysts say.

Today, Petrobras — the world’s third largest

oil company by market cap — produces 2.5

million barrels of oil a day, making Brazil self-

sufficient. Petrobras says it operates in 29

countries, including Angola, Argentina,

Bolivia, Colombia, Nigeria and the U.S., where

it has a refi nery in Pasadena, Texas. In addition

to its headline-grabbing pre-salt discoveries,

Petrobras is exploring nearly 260 oil and gas

blocks off the American coast in the Gulf of

Mexico. With more than 100 production plat-

forms and 16 refi neries worldwide, and more

than 6,000 gas stations throughout Brazil,

Petrobras has been “a major player even before

the pre-salt discoveries were made,” says Eric

Smith, a 35-year veteran of the oil and gas

industry and associate director of the Tulane

Energy Institute in New Orleans.

With such a backdrop, Gabrielli believes the

company’s pre-salt fi nds will put Petrobras in a

new league. Th e CEO estimates that by 2020, the

pre-salt discoveries could boost the company’s

production to up to more than 5 million barrels

a day, putting Petrobras on par with EXXON

MOBIL CORP. (XOM), the world’s largest inde-

pendent oil company, and enabling Brazil to

become a major oil exporter. Says Judson

Jacobs, director of upstream technology for

IHS Cambridge Energy Research Associates:

“Th e volume of reserves Petrobras has cited

would have a signifi cant impact on the global oil

capacity.” Adds Smith: “Th ere’s no question.

Petrobras’ pre-salt discovery is a game changer.”

Dialing up the pressure is the fact that the

Brazilian government owns about 40 percent

of Petrobras stock (including shares owned by

the Brazilian Development Bank), accord-

ing to the company, and is currently draft ing

new exploration and production legislation

that could give it a distinct advantage over

competitors for future drilling rights in the

pre-salt region. If the government has its way,

Petrobras will be the lead operator for the more

than 60 percent of the new deepwater blocks

that haven’t been bid out yet. While that might

seem to put the company in an enviable posi-

tion, experts say, such a move does not come

without a price.

“Petrobras is a well-run company that bene-

fi ts from competition and stirs innovation and

effi ciencies,” says Christopher Garman, director

of Latin America for the Eurasia Group, a global

political risk research and consulting fi rm. “Th e

risk is that if Petrobras gets favorable treatment

in acquiring new reserves in the pre-salt region,

it may be susceptible to growing political pres-

sure over its investment decisions and become

increasingly overstretched in a manner that

could make it susceptible to cost overruns and

thus less able to invest heavily abroad.” During

the next fi ve years, Petrobras offi cials say, just

$16 billion — a fraction of its $174 billion capital

expenditure budget — is earmarked for expand-

ing its operations outside Brazil.

A TRICKLE OF OILo fully appreciate the position Petrobras

fi nds itself in today, one must look back

at its humble beginnings. When the

company was formed in 1953, “we

didn’t really have any oil,” explains Gabrielli,

who joined Petrobras in 2003 and was named

CEO two years later. “You have to remember,

most state oil companies are created because

the country already has oil that needs to be

developed. In the beginning, we produced CO

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B Y 2 0 2 0 P E T R O B R A S C O U L D

B O O S T I T S P R O D U C T I O N T O

U P T O M O R E T H A N 5 M I L L I O N

B A R R E L S A D A Y , P U T T I N G

I T O N P A R W I T H E X X O N M O B I L .

PETROBRAS OPERATES IN 29 COUNTRIES.

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maybe 2,000 barrels per day, a fraction of the

country’s needs.”

Still, the CEO says, the company’s mandate in

those early years was clear: Provide oil to Brazil.

“So we developed our capacity,” Gabrielli says.

Th e challenge for Petrobras, however, was that

unlike countries such as Mexico, where much of

the oil was in shallow water, Brazil had oil pri-

marily in deep water way off shore. “We didn’t

have much of a choice,” Gabrielli explains. “We

had to develop our own engineers and get the

best equipment and information, because drill-

ing in deep water is not easy.”

To gain access to the technological know-

how and talent it needed, Petrobras started

Cenpes, a research-and-development center,

which, according to the company, is now the

largest technology R&D facility in South Amer-

ica. Cenpes is home to more than 200 PhDs,

many of whom have decades of experience drill-

ing in deep water. According to the company, the

center also has joint-venture contracts and

research agreements with more than 100 Bra-

zilian universities and research centers and more

than 70 international institutions. In the late

1970s, Gabrielli says, Petrobras discovered its

fi rst deepwater oil reserves off the coast of Brazil

in water just over 400 feet deep. “Deep then,” he

says with a laugh, “but not compared with now.”

Th is sort of organic learning has become the

Petrobras way, explains CFO Almir Barbassa,

who joined the company in 1974. “We’re always

adding new knowledge about deep-water explo-

ration. Deep water is the place where the largest

oil fi elds are, and we have the expertise to deal

with this kind of environment.”

Finding oil in such depths is just one piece of

the puzzle. Getting it up to the surface is another,

explains José Jorge de Moraes Jr., executive man-

ager of exploration and production. (See “Making

a Splash,” right.) “We have to fi gure out how the

oil will react,” he says. “What deposits are there?

What will happen when the oil has to face the

lower temperatures at the bottom of the ocean?

We have to acquire a lot of information before

we can produce on a large scale.” Th ose chal-

lenges notwithstanding, Smith of the Tulane

Energy Institute says that if any oil company can CO

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FROM A DISTANCE, the drilling platforms that

sit 180 miles off the coast of Brazil look almost

like a kid’s Erector set. But at a price of $1.5

billion to build — and with the need for about

40 of them — these rigs aren’t child’s play.

To get to the oil that’s buried deep beneath

the earth’s crust, Petrobras Exploration and

Production Executive Manager José Jorge de

Moraes Jr. explains that a drill shoots straight

down from the rig through more then a mile

of water. Once it hits the ocean floor, it drills

through another 3 miles of rock and salt. “Salt

is not stable rock,” he observes. “We do a lot

of testing to figure out the right speed and

weight of the drills to use.” Still, Moraes says,

the real challenge is the sea. “Oil is always

connected to salt, so this part isn’t new,” he

notes. “The challenge is how to drill through

2,000 meters of water and the pressure on

the equipment at that depth.”

Petrobras is getting the hang of it. Moraes

says it took the company 170 days to drill

the first pre-salt well. These days it takes

anywhere from 60 to 70 days to drill. “Our

goal,” he explains, “is to drill a well in 50 days

for $50 million.”

MAKING A SPLASHH O W D O Y O U E X T R A C T O I L F R O M

M I L E S B E L O W T H E O C E A N F L O O R ?

V E R Y C A R E F U L L Y .

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overcome these hurdles, it’s Petrobras: “It has

been a pioneer in deepwater exploration, and it’s

world-class in its technology.”

NEW COMPETITION

razilian lawmakers ended the monopoly

Petrobras had on drilling and allowed

outside companies to bid and develop

leases off its coast in 1997. “We have to

compete with other companies now,”

Gabrielli says plainly. ExxonMobil, ROYAL

DUTCH SHELL PLC (RDS), CHEVRON CORP. (CVX)

and BG Group PLC are all drilling off the

coast of Brazil, sometimes on their own but

often in partnership with Petrobras. “These

companies are very happy with Brazil,” says

Smith, “because the government has been wise

enough to recognize the important role that the

oil and gas industry plays in the development of

the economy and to acknowledge the benefi ts of

bringing in new ideas and technologies from

other oil companies. Brazil hasn᾿t made it diffi -

cult for outsiders to do business there.” New laws

being considered, to increase the government’s

“take” from the pre-salt region, could change

that, of course, Smith says. Also, the push by the

government to get the deepwater oil developed

quickly so that Brazil can benefit from this

potential royalty bonanza puts additional pres-

sure on Petrobras, he says. At the same time,

adds Eurasia Group’s Garman, “government

offi cials recognize that private investments will

play a key role” in developing the pre-salt region.

Indeed, analysts estimate that it will take nearly

$600 billion to develop those fi elds.

Brazil loosened its ownership ties to Petrobras

in 2000 when the company began trading on the

New York Stock Exchange. To expand the com-

pany’s reach, explains Gabrielli, the government

realized it needed to end its national monopoly

and enable outside investors and competitors to

play a role. With new stakeholders, a new empha-

sis on profi ts and growth, and competitive pres-

sure for the fi rst time, the CEO says, Petrobras

has been able to double oil production and

increase its reserves by more than 75 percent.

To be sure, Petrobras’ $118 billion 2008

sales are still dwarfed by industry giants Royal

Dutch Shell ($458 billion), ExxonMobil ($443

billion) and BP PLC (BP) ($367 billion), but with

the government still owning 40 percent of the

company — and controlling 56 percent of the

voting rights — Smith nevertheless calls Petro-

bras “a user-friendly national oil company

[NOC] to outsiders.” Adds Smith: “It’s just easier

to do business with Petrobras than with other

NOCs, such as those in Venezuela, Mexico,

Russia or even Saudi Arabia.”

A TURNING POINT

hile Gabrielli leads Petrobras through

these remarkable times, he’s no doubt

reminded of another turbulent period

in the company’s past. In 2000, Petrobras had

two giant oil spills in Brazil — nearly 1.5 mil-

lion gallons in total — and paid $150 million in

fi nes for the resulting environmental damage.

A year later, a huge explosion on one of its off -

shore oil rigs killed 11 employees and caused

the $350 million platform, along with the

company’s reputation, to sink. Gabrielli has

described the events as “environmentally dev-

astating, alarming to investors, harmful to the

bottom line, bad for the company’s image and

demoralizing for employees and all Brazilians.”

Restoring the company’s reputation required

some big thinking and quick action. Th en-CEO

Philippe Reichstul created a director-level posi-

tion for health, safety and the environment. In

addition, Petrobras started the Program for

Excellence in Environmental and Operational

Safety Management (PEGASO) and dedicated

$4 billion to more than 4,000 internal programs

and projects designed to prevent accidents.

By the time Gabrielli joined the company in

2003 as director of fi nance and investor rela-

tions, the changes had begun paying dividends.

Today Petrobras is a member of both the World

Business Council for Sustainable Development

and the United Nations Global Compact, a

social and environmental policy program. Th e

company has been listed on the Dow Jones

Sustainability Index for the past four years.

And in 2008, Petrobras was ranked No. 1

among the world’s oil and gas companies for

sustainability by the research and rating fi rm

Management & Excellence SA.

Gabrielli acknowledges that Petrobras’ new

sustainability ethos mirrors many of his own

beliefs. During his teenage years in Brazil, the

country was under a military dictatorship.

Gabrielli describes himself as “militant” in his

opposition and says he became such an activist

in the 1960s that he was arrested by the army

and spent six months in jail for his protests.

Following his release, Gabrielli says, he took

up with local academics and Luiz Inácio Lula

da Silva, then a union leader and now Brazil’s

president. In 1980, Gabrielli and Silva helped

start the Workers’ Party, the controlling

political party of the current Brazilian gov-

ernment. Not long aft erward, Gabrielli began

teaching macroeconomics at the Federal

University of Bahia. In 1987 he earned his

PhD in economics from Boston University.

Upon returning to Brazil, he taught again at

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PRE-SALT AREA

T H E C O M P A N Y R E C E N T L Y

A N N O U N C E D A $ 1 74 B I L L I O N

C A P I T A L E X P E N D I T U R E P L A N ,

$ 3 0 B I L L I O N O F W H I C H W I L L

G O T O W A R D F I N A N C I N G

T H E P R E - S A L T D I S C O V E R I E S .

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Bahia and was named director of its eco-

nomics sciences school in 1996.

Gabrielli says it was his research and teach-

ing that led him to believe that business has the

responsibility and the power to drive social

improvement. “A company can’t survive with-

out good relationships with its employees, its

supply chain, the community in which it does

business and its shareholders,” he says. “Some-

times keeping everyone happy is a balancing

act, but it can be done, and businesses have a

responsibility to achieve this.”

Th e chief also feels that Petrobras, as Brazil’s

largest company (with a market cap of $190 bil-

lion), has a responsibility to raise the bar with its

suppliers. In 2008 approximately 70 percent of

the $50 billion Petrobras spent on goods and

services went to about 4,000 Brazilian suppliers,

according to the company. Beyond meeting

basic fi nancial, legal and technical requirements,

suppliers are scored on how well they do on

environmental, health and safety measures. Th e

higher a supplier’s score, the more business it

will get from Petrobras, explains Gabrielli.

THE FUTURE

iven the amounts that Petrobras will

be spending over the next fi ve years,

suppliers would be wise to pay

attention. The company recently

announced a massive $174 billion

capital expenditure plan that will

include $104 billion in exploration and pro-

duction activities, $30 billion of which will

go toward fi nancing the pre-salt discoveries.

CFO Barbassa estimates that the company’s

net cash fl ow between 2009 and 2013 will be

around $150 billion based on oil at $37 to $66

a barrel, near its lowest level in late 2008. If

the price goes up by just $1 (at press time, oil

was trading at about $69 a barrel), Petrobras

stands to gain $500 million more in revenue,

Bar bassa explains. An added financial cush-

ion is a $10 billion loan signed earlier this

year with the Chinese Development Bank,

according to the company. In addition,

Gabrielli says Petrobras signed a separate

export agreement with CHINA PETROLEUM &

CHEMICAL CORP. (SNP), or Sinopec Corp., to

supply China with 200,000 barrels of oil a

day for the next 10 years.

During the next fi ve years, Petrobras is also

earmarking nearly $3 billion for biofuels.

Gabrielli says he is keenly aware that while

eliminating accidents and minimizing the

environmental impact of the company’s opera-

tions are admirable goals, they don’t eliminate

the amount of carbon its products release into

the atmosphere. Among the projects being

developed at the Cenpes research center are

second-generation biofuels, including ethanol,

that can be produced from agribusiness waste.

Th e pre-salt discoveries have the potential

to change the trajectory of Petrobras — and

Brazil — for decades to come. But while the

upside opportunities are tremendous, the risks

are equally large, observers say. To start with,

not every well in the pre-salt region will pro-

duce oil, despite the company’s technological

expertise. Recently, Gabrielli issued statements

saying that it is impossible to have a 100 per-

cent success rate in its pre-salt drilling.

How the potential fi nancial windfall might

be used by Brazil is another area of concern.

Eurasia’s Garman says the government “has

shown a good level of maturity” in considering a

“social responsibility” fund for the proceeds

from the pre-salt discoveries. According to

Eurasia Group, Brazil’s president has repeatedly

stated that the country should save the pre-salt

oil revenues and use them to address its social

issues, particularly health care and education,

rather than fund current expenses. “[Brazil has]

wisely recognized the perils of depending too

heavily today on the revenue that comes from its

natural resources, from its oil,” says Garman.

Despite the risks — and even in the face of

a still tenuous global fi nancial recovery —

Gabrielli remains upbeat. “Th is company right

now has a very bright future ahead of it,” the

chief says. “And in the coming years, we are

going to be one of the top fi ve energy compa-

nies in the world.” But fi rst, there’s today.

Read how Petrobras has increased its shareholders by

40 percent at nysemagazine.com/petrobras.

JUST THE FACTSF O UN D ED As a state-owned oil company in 1953

HEADQUARTERS Rio de Janeiro

2008 SALES $118.3 billion

2008 NET INCOME $18.9 billion

EM P L OY EE S 74,240

O P ER AT I O NS More than 100 production

platforms and 16 refi neries worldwide, and more

than 6,000 gas stations in Brazil

HEAD OF THE CL ASS President and CEO José

Sergio Gabrielli de Azevedo is a professor on leave

from Brazil’s Federal University of Bahia.

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N A R O L L

N E W C E O G R E G W A S S O N I S

R E - E N G I N E E R I N G C E N T U R Y - O L D W A L G R E E N S A S A

O

» PHOTOGRAPHS

BY KEVIN

J. MIYA Z AKI

»

ANNE SMITH’S EIGHT-YEAR-OLD SON has had a sore throat, headache and

sporadic fever for several days. She thinks he should go to the doctor,

but the cost, combined with her inability to take time off work to bring

him, forces her to keep him home. Instead, after work, Smith takes him to Wal-

greens — not just for pain medicine, orange juice and throat lozenges but also for a

visit to the in-store Take Care Clinic.

She signs in at an electronic kiosk, the kind airlines use for letting you get your own

boarding pass. She types in her son’s name and date of birth and checks off his symp-

toms. A menu of prices for a medical consultation appears before she presses “con-

tinue,” so the bill yields no surprises. Ten minutes later, a nurse practitioner does a

screening, and within 15 minutes, the boy is diagnosed with a sinus infection. A record

of the visit is stored and a prescription is sent electronically to the patient’s choice of

pharmacy — typically the one just steps away inside Walgreens. The Smiths pay $59 for

the exam, $12 for a generic antibiotic, and they’re on the way home in under an hour.

These clinics may be the most conve-

nient way to get medical care since the

house call — only more affordable and

available to anyone, with or without insur-

ance, with or without a primary-care physi-

cian, says Greg Wasson, WALGREEN CO.

(WAG) president and CEO. He says thou-

sands of scenarios like this have taken

place every day since Walgreens rolled out

its Take Care Clinics across the U.S. in

2007, when it acquired Take Care Health

Sys tems, a company launched in 2004

by Hal Rosenbluth, now president of

Wal greens’ Health and Wellness division.

» B Y J U L I E

M O L I N E

R E S O U R C E F O R A L L H E A L T H N E E D S .

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AFTER 12 YEARS AS A MANAGER, CEO GREG WASSON IS AT HOME IN THE AISLES OF A RETAIL STORE.

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Walgreens, which now has more than 340 Take Care Clinics

around the country, in 35 markets and 19 states, sees them not

only as profi t drivers, says Wasson, but also as a way to off er a

complete package of health and wellness — plus pharmacy —

services directly to its customers.

With 6,996 retail centers in all 50 states, Washington, D.C.

and Puerto Rico — as well as an online store, mail-in pre-

scription and specialty pharmacy services, home-health-care

and health-care-plan administration — Walgreens generated

$63.3 billion in fi scal 2009 sales, according to the company.

Branching into health and wellness services is a marked

shift in strategy for the drugstore chain that Charles R.

Walgreen founded in 1901, in Chicago. Historically the

company has been recognized for its intense focus on

growing earnings through the expansion of its network of

18

brick-and-mortar stores. Th is helped Walgreens

achieve 34 consecutive years of record sales and

earnings, a feat accomplished by only one other

major U.S. corporation: WAL-MART STORES INC.

(WMT). From 2006 to 2008, Walgreens opened

more than 500 new stores per year — or, as Wasson puts it, “A new Walgreens

opened every 17 hours.”

Th e in-store clinics are top of mind for Wasson, especially now that health

care is dominating social and political discussions. Wasson comes by his passion

for pharmacies naturally: Two of his uncles owned small-town drugstores. Th e

CEO, who interned at Walgreens while still in pharmacy school, managed stores

for 12 years aft er he got out of school. His experience on the front lines of the

retail chain informed his support for the Take Care Clinics as a way to make

Walgreens a major player in the development of a “more comprehensive, less

fragmented health-care system.”

Because hospitals by law can’t turn away patients, many uninsured citizens use

emergency rooms as de facto doctors’ offi ces, putting a massive fi nancial strain

on hospitals and the municipalities and taxpayers that fund them, Wasson

explains. “Health care costs too much and doesn’t reach enough people,” he says.

“Private-sector clinics like ours go a long way toward solving these complex

health-care issues, even without a major change in government policy.” Wasson,

who at 50 seems younger, thanks in part to a love of outdoor sports, sums it up

in sportsmen’s terms: “Take Care Clinics hit the trifecta. Th ey benefi t the patient,

they benefi t the community, and they benefi t Walgreens.”

18

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N UF E DSIOST PRESCRIPTION DRUGS ARE TAKEN ORALLY OR THROUGH A

transdermal patch. But many drugs that treat chronic diseases such as

multiple sclerosis, rheumatoid arthritis and some cancers must be injected

or infused. That specialty is the industry’s fastest-growing segment, making up 20 per-

cent to 25 percent of the pharmacy market, says Stanley Blaylock, president of Walgreens

Health Services. And the trend is growing: 80 percent of products awaiting FDA approval

in 2008 were specialty drugs, according to research fi rm IMS HEALTH INC. (RX).

Walgreens is aggressively seizing the opportunity, building market share through the

acquisition of MedMark in 2003, OptionCare in 2007 and MCKESSON CORP. (MCK) in

2008. Blaylock says the McKesson deal expanded Walgreens’ national reach and access

to managed-care payers, turning it into the largest specialty pharmacy independent of

the major pharmacy benefi t managers (PBMs). The company can now deliver patient

care and services through its fulfi llment centers and the 7,000 electronically linked

pharmacies. The pharmacies can then fi ll prescriptions for infused or injected drugs,

coordinate insurance benefi ts or even provide individualized therapy management and

clinical support. “[We deliver] services around delivering the drug, wherever that may

take place — at a person’s home, a physician’s

offi ce, an ambulatory treatment center or a clinic,”

Blaylock says. “If a drug can be self-administered,

Walgreens can train patients on how to do it ... We

have nearly 1,000 nurses, usually RNs with spe-

cialty IV training, on staff to provide that care.

“This is what I call a hard business. Still,

what’s attractive to us is that this segment is

growing fast and is very complementary to our

core retail pharmacies.”

It’s easy for the managed-care industry to see

the benefi ts of Walgreens’ program. “Our patient

compliance rate is in the low to mid 90s,” Blaylock

says, “which is extraordinarily high. That’s good

for patients, and it’s good for the health-care

system overall.”

W A L G R E E N S O P E N E D M O R E T H A N 5 0 0

S T O R E S P E R Y E A R — O R , A S W A S S O N P U T S I T , “ A N E W

W A L G R E E N S O P E N E D E V E R Y 17 H O U R S . ”

W I T HP O S S I B I L I T Y

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All of which is why the company, under Wasson, has launched what it calls

the most crucial and dramatic strategic re-engineering in its history. His top

three objectives: “control expenses, sharpen store operations and diversify the

business model.”

To achieve those goals, Wasson has quietly assembled a leadership team that

has new hires in key positions in fi nance, sales and marketing. Th e company’s fi rst-

ever chief marketing offi cer, Kim Feil, and Bryan Pugh, vice president of merchan-

dising, came from outside the company. Rosenbluth and Stanley Blaylock, senior

vice president of Walgreens and president of WHS — Walgreens Health Services,

the company’s managed-care division — are from acquired companies. Both of

them bring what Wasson characterizes as an “entrepreneurial and oft en iconoclas-

tic” approach to the table.

Expense control has resulted in slimming down at the top, including the shed-

ding of nearly 1,000 jobs through a combination of voluntary buyouts and layoff s.

Th ose and other productivity moves are expected to save $1 billion a year starting

in fi scal 2011, according to the company.

Additional savings come from focusing more on growing revenue and getting

more from existing store locations. Last October the company dropped its bid for

Longs Drug Stores, the 521-location chain. Annual new store growth during the

next two years is expected to drop from 9 percent to between 2.5 percent and 3 percent.

Investment has been redirected toward improving effi ciencies, says Wasson, par-

ticularly through “better sourcing and productivity.”

Th e order of benefi ciaries is telling. Although Wasson is

intent on increasing shareholder value, his colleagues say

that he still has the heart of a health-care professional who

puts patient care at the top of his priorities. He’s known as a

quiet, eff ective leader, a fi erce proponent of promoting from

within and a tireless advocate of community service.

(Besides serving on the board of directors for the National

Association of Chain Drug Stores and the Retail Industry

Leaders Association, he is co-chair of 2009 Chicago fund-

raisers for the American Heart Association and the American

Cancer Society.)

Wasson joined the company in 1980 as a pharmacy intern

while a student at Purdue University; he managed several

Houston drugstores before moving up the ranks in opera-

tions, becoming a regional vice president of store operations

in 1999. He then held several executive positions at Walgreens

Health Services, the company’s managed-care subsidiary that

includes a pharmacy benefi t manager (PBM), before being

named executive vice president in 2005, then president in

2007. He took over as CEO in February 2009.

NEW CATALYSTS, NEW DIRECTION

f “location, location, location” is the man-

tra of the real estate trade, Walgreens is in

retail nirvana. According to Wasson, nearly

three-quarters of the U.S. population lives

within fi ve miles of a Walgreens, the com-

pany has more 24-hour stores than all of its competitors

combined, and one out of every fi ve prescriptions written in

the U.S. is fi lled at a Walgreens.

Even so, the market penetration that the company’s break-

neck growth engendered was bound to slow at some point,

and Walgreens hit the brakes as the economy plunged last

year. “As a company, we are very, very good at expansion,”

Wasson says, “but in an economic downturn, we knew we

couldn’t rely on new store openings to propel growth.”

Sales growth rose at the slowest pace in 18 years, accord-

ing to analysts. But, Wasson adds, other pressures were evi-

dent even before the downturn. Industry consolidation

tightened competition. Th e growth of mail-order prescrip-

tion fulfi llment is up signifi cantly, now totaling about 15 per-

cent of all prescriptions, driven heavily by PBMs, he says.

PBMs pose a complex challenge because they are sometimes

competitors of Walgreens and sometimes clients, he points

out. In any case, when a patient fi lls a prescription by mail, he

or she is skipping a visit to a store, where sundries, groceries

and various impulse buys can be picked up as well. Walgreens,

Wasson says, needs to stay relevant by “giving consumers a

compelling reason to visit our stores.”

KIM FEIL, THE COMPANY’S FIRST-EVER CMO, AIMS TO MAKE IT A TRUSTED RESOURCE FOR WELLNESS.

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One productivity-based initiative is to transform the way

community pharmacy is practiced, Wasson explains. Part of the

eff ort involves a new pharmacy model, which transfers most

administrative work to a central location. As well, roughly a third

of each pharmacy’s refi ll prescription orders are fi lled at the cen-

tral facility, Wasson says. (Th e call center is staff ed with pharma-

cists, who can also answer patient questions.) Wasson says the

benefi ts to increased effi ciency aren’t just better margins but also

“more time for the pharmacist to interact with the patient.” Th e

new model was rolled out in phases earlier this year, and all 800

Florida stores are online, according to the company. Th e model

is currently being implemented in Arizona.

REVAMPED STORES

he company expects to save money through

energy management, Wasson says. He adds

that green building techniques at Walgreens

now involve roughly 100 diff erent environ-

mental projects running concurrently, some

in conjunction with GENERAL ELECTRIC CO. (GE). Th at partner-

ship, which began with developing energy-effi cient lighting

for stores, dates back to 1968, according to both companies.

Fluorescent ceiling lights alone save $5.7 million a year in

energy costs, Walgreens says. Solar energy now provides 20

percent of the electricity needs in 52 Walgreens stores and two

distribution centers, and LEDs illuminate store refrigerators. In

May the fi rst Walgreens with a green roof — one planted with

heat- and water-absorbing plants, reducing both heating costs

and water runoff — opened in Chicago. Meanwhile, other

environmentally friendly policies — reduced water consump-

tion, more recycling of construction waste, designated parking

for energy-effi cient cars, and bike racks for customers and

workers — all contributed to Walgreens’ selection to partici-

pate in a pilot program run by the U.S. Green Building Council

to help develop environmental standards for retail construc-

tion, the company says. Walgreens is the only drugstore chain

among 70 retailers in the program, according to the Council. (See nysemagazine

.com/walgreens for more on the program.)

As these new corporate initiatives are put in place, one element of the busi-

ness remains paramount: the customer experience. CMO Feil, a former marketing

chief for SARA LEE CORP.’s (SLE) North American division, joined Walgreens in

2008. Her primary focus: “I want to see us elevate the Walgreens brand to not just

become an absolutely trusted corner store but to be consumers’ fi rst choice for

health and personal wellness.” And Vice President of Merchandising Pugh, who

spearheaded Wal-Mart’s global strategy before helping bring Tesco’s Fresh & Easy

initiative into North America, is helping to sharpen Walgreens’ competitiveness in

grocery retailing. He joined the company in January.

Adding new and diff erent food items to its inventory is important to Walgreens.

According to Pugh, the goal is to make Walgreens a trusted source for the items you

need between big-grocery-store runs. It’s all part of a more universal eff ort to “better

match merchandise to consumer preferences,” as Feil puts it. Pugh is leading the com-

pany’s consumer-centric retailing project, which will determine the right merchandise

mix and improve the customer experience.

Cross-category teams, whose members come from marketing, operations and

sales, spent more than 1 million hours revamping product off erings, reducing by

15 percent to 20 percent the average number of SKUs, or units per store, down from

a high of about 25,000. Th e resulting stock, with fewer redundant or slow-moving

items, will “better refl ect local tastes and create more of an exciting shopper expe-

rience,” Pugh says. Th e goal is to boost the average number of items in shopping

baskets from the current average of 3.1, he says. To bolster its commitment to the

health of consumers, he notes, the company is trying to provide healthier options,

even adding items like sugar-free Glucerna, aimed at people with diabetes.

Th e physical attributes of the stores are also being improved, Pugh says. “Shelves

are lower, signage and fl ow are better, and merchandise is being presented by

theme rather than category.” All baby items, for instance, are now in a consolidated

baby-care section; all tooth-whitening products, whether toothpaste, mouthwash

or whitening strips, are shelved together. Some items are now clustered according

to purchase frequency rather than type. New this year is the “aff ordable essentials”

section, a display of 12 of the most frequently purchased items — for example,

laundry detergent, facial tissue, shampoo and over-the-counter painkillers. One

product per category is off ered, from a supplier such as PROCTER & GAMBLE CO.

(PG) or JOHNSON & JOHNSON (JNJ), or Walgreens’ store brand, at a competitive price.

“It’s an important program,” Feil says, “because we traditionally relied on somewhat

complicated value messages and tools, and we recognize that the consumers want us

to be more immediate. So there’s no coupon clipping, no rebates, no having to look

in the Sunday circular.” Th e results? Feil says 41 percent of customers shopping this

section have added an item to their basket.

Th e company is courting value-conscious customers another way: through the

Prescription Savings Club Card. Launched in 2007, it off ers deep discounts on

roughly 5,000 brand-name prescription drugs and 400 generics, competing eff ec-

tively with discount drug programs off ered by Wal-Mart and Target. In the two years

since the Prescription Savings Club Card was introduced, it has drawn nearly 2 mil-

lion members, according to WHS President Blaylock, who adds that the ranks con-

tinue to grow, as virtually everyone needs a prescription at one time or another and

is looking for a price break nowadays. “Th e market potential is huge, given that there

T

J U S T T H E FAC T S

F O UN D ED In 1901 by Charles R. Walgreen, in Chicago

HE A D Q UA R T ERS Deerfi eld, Ill.

2008 SALES $59 billion

2008 NET INCOME $2.2 billion

EM P L OY EE S 237,000

RE TA IL S T O RE S 6,996 (1,591 are drive-throughs)

M O S T P O P UL AT ED S TAT E Florida, with 800 Walgreens

I ’ LL D RIN K T O TH AT The company claims to have invented

the malted milk shake, in 1922.

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ment with CATERPILLAR INC. (CAT) to provide proprietary,

transparent pricing for prescriptions fi lled by employees un-

der the company’s drug benefi t plan.

The corporate on-site clinics and pharmacies are a natu-

ral fit for Walgreens, says Rosenbluth, who sold his travel-

management fi rm Rosenbluth International for an undisclosed

sum to AMERICAN EXPRESS CO. (AXP) in 2003. A self-described

“policy wonk” and a passionate supporter of corporate social

responsibility, Rosenbluth says that “the chance to build out

this part of Walgreens was too intriguing to pass up.”

What’s more, he adds, “it’s a winning scenario. Running the

clinics is a profi table, steady source of revenue for us; corpora-

tions are turning to them to lower their costs of health care, off er

employees a perk and give them the chance to help direct their

own health maintenance. Th ese things have been proven time

and again to increase effi ciency, boost morale and lower absen-

teeism. But it’s also a way to channel consumers to other areas of

the company — front-end sales both at the retail store and from

the sale of prescriptions.”

GREG WASSONPresident and CEOWALGREEN CO.

IN MYOWN WORDS >> Worst job ever It’s a tie. One was having to cut

fi rewood with a buzz saw for days on end. And I don’t think anyone has worked until they’ve baled hay.

>> The work story I fi nd myself telling most often at cocktail parties When I opened the fi rst Walgreens in Las Vegas in 1996. I’d been a district manager for 12 years, so management knew I was bringing some experience, and they gave me enough rein to open Las Vegas. That became our No. 1 new market ever. It was one of the most enjoyable parts of my career because I was empow-ered by a VP who believed in me. I tell the story not to brag about my accomplishment but to encourage managers to match the right people to

the right opportunity — to not constrict or restrict what stars in the making do.

>> Favorite hobby Water sports — waterskiing and

boating in particular.

>> Scariest moment When my daughters were young, I thought we’d have a Gilligan’s Island experience on Lake Mead. While living in Las Vegas, I had bought a deck boat, and one weekend we camped out on an island. But in the middle of the night, a monster storm came up, with high winds and eight-foot waves. I threw the kids and the dog on the boat and got out of there. I was very glad I’d taken a Coast Guard safety class — the walls of water were like cliffs.

are 47 million uninsured people in this country,” he says, “and that’s not counting

the millions of underinsured with big out-of-pocket expenses.” About a third of new

club members have never fi lled a prescription at Walgreens before, he adds, “so the

card has been a nice marketing vehicle. If we can

capture them as pharmacy patients, they’re more

likely to come into the store for other things.”

As customer-relationship initiatives continue,

Walgreens is working on ways to forge stronger ties

with vendors as well, Feil says. New retail marketing

teams have been created to work with supplier merchandise managers to develop all

sorts of marketing and merchandising programs, national and otherwise. In spring

2010, a partnership with MARVEL ENTERTAINMENT INC. (MVL) will bring a direct-to-

retail merchandise program involving classic characters (Spider-Man, Iron Man, the

Hulk) on toys, pet products, furniture and novelty candy, all exclusively for Walgreens.

For smaller vendors, such as NutraBella, which produces nutritional food and drink

products for pregnant women, the partnership is more modest: Customers buying

prenatal vitamins are given coupons for NutraBella products, according to Feil.

BRINGING THE PHARMACY TO THE PATIENT

algreens’ re-engineering isn’t just about products; it’s also

about services, whether they’re delivered at an in-store clinic,

a medical building, a customer’s home or the workplace. Th e

company says its Health and Wellness division is the largest

operator of worksite health centers and pharmacies in the

country. Walgreens reports that it operated 370 clinics on or near employer cam-

puses by the end of fi scal 2009, including those of CAPITAL ONE FINANCIAL CORP.

(COF), CONTINENTAL AIRLINES INC. (CAL), GOODYEAR TIRE & RUBBER CO. (GT), RIO

TINTO PLC (RTP), SPRINT NEXTEL CORP. (S) and WALT DISNEY CO. (DIS). On off er is a

list of services that includes primary care, acute care, wellness programs, disease

management and on-site pharmacies, according to Rosenbluth.

Th e on-site clinics are built according to a client’s specifi cations, says Rosen-

bluth. Th ey are linked electronically to the rest of the Walgreens network, so all

employees, no matter where they work, plus their dependents can be treated at a

Walgreens Take Care Clinic. In addition, Walgreens is working directly with em-

ployers to control prescription drug costs. Walgreens recently signed an agree-

W

A S C U S T O M E R - R E L AT I O N S H I P I N I T I AT I V E S

C O N T I N U E , W A L G R E E N S I S W O R K I N G O N W A Y S T O F O R G E

S T R O N G E R T I E S W I T H V E N D O R S .

To read about Walgreens’ work with the U.S. Green Building Council, visit

nysemagazine.com/walgreens.

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SCREEN SHOT: THOMAS J. FALK AT KIMBERLY-CLARK’S INNOVATION DESIGN STUDIO IN NEENAH, WIS.

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23

IMBERLY-CLARK CORP. (KMB) is a study in contrasts.

While it is recognized around the world as a leading

innovator in the consumer-products sector, some of

its top brands, including Scott, Kleenex and Kotex,

date back to the early 1900s. A global company that

operates in 35 countries, Kimberly-Clark has a manage-

ment philosophy of putting consumers and employees fi rst

that never strays too far from its hometown roots in Neenah,

Wis. And with 53,000 employees working in four major

business groups, the company’s future depends on main-

taining and cultivating the entrepreneurial spirit that has

driven its growth for the past 137 years.

Th e challenge of balancing that dichotomy — keeping a

fi rm grasp of Kimberly-Clark’s traditions while constantly

looking for new opportunities in a fast-changing global

economy — rests on the shoulders of Chairman and CEO

Th omas J. Falk. A 26-year Kimberly-Clark veteran and only

the eighth CEO in the company’s history, Falk is the archi-

tect of the company’s Global Business Plan, although the

soft -spoken Midwesterner clarifi es, “I’m one of the builders,

but a lot of us are holding hammers.”

Th e company says its four major business lines are: Personal

Care; Consumer Tissue; K-C Professional and Other, which

produces a broad portfolio of hygiene and safety products for

» P H O T O G R A P H B Y E R I N P A T R I C E O ’ B R I E N

»

Mild-mannered Kimberly-Clark CEO Th omas J. Falk

has the storied paper-products company focused on innovation.

» B Y R E B E C C A M C R E Y N O L D S

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the away-from-home marketplace; and Health Care, which focuses on

products that can help protect health-care workers and patients in an

acute-care environment. Personal-Care and Consumer Tissue prod-

ucts still accounted for about three-quarters of the company’s nearly $20

bil lion in 2008 revenue, says Falk. But he adds

that the K-C Profes sional and Health Care

segments present opportunities for growth.

BUILDING ON STRENGTHS

very good architect understands

that a design is only as strong as

its foundation, and when Falk

took the helm in 2002, he knew

he had solid footings in place.

When the company’s four founders came

together in 1872 to create a new type of paper

company, they agreed on four basic tenets:

to manufacture the best possible products;

to serve customers well and deal fairly to

gain their confi dence and good will; to deal

fairly with employees; and to expand capac-

ity as demand for product justifi ed, fi nanc-

ing that expansion out of earnings.

Although none of these seems particu-

larly groundbreaking today, each was a dra-

matic departure from business as usual in

the 19th century. For example, whereas other

paper mills were churning out products as

cheaply as possible, Kimberly, Clark & Co.,

as the company was then known, built the

fi rst mill in Wisconsin to make a new, higher-

quality newsprint made entirely out of linen and cotton rags. Th e

founders were betting that customers would pay a premium for better

quality. Today, with top brands such as Kleenex, Scott, Huggies, Pull-

Ups, Kotex and Depend, Kimberly-Clark holds the No. 1 or No. 2 mar-

ket share position in more than 80 countries, says Falk.

Using cash fl ow instead of debt to fi nance expansion has helped the

company weather every economic downturn of the past century, notes

the CEO, including the Great Depression and the current recession.

Despite the latest downturn, Kimberly-Clark’s strong cash flow

allowed the company to repurchase $625 million worth of stock in

2008 to return cash generated in the business to its shareholders, the

CEO confi rms, and the company implemented a 3.4 percent divi-

dend increase in 2009, the 37th consecutive

annual increase. “More important,” Falk says,

“when you are a strong company with healthy

cash fl ow, you may get some opportunities

during a recession that you wouldn’t get at

another time.”

He points to the company’s April 2009

acquisition of Jackson Products Inc., a lead-

ing provider of welding safety products, per-

sonal protective equipment and work-zone

safety products. Th e purchase, he explains,

meshed tightly with the company’s strategy

to accelerate growth of high-margin work-

place solutions under the K-C Professional

business line. “Because of the economic down-

turn, we were able to buy it at a more attrac-

tive price,” Falk says.

PLAYING TO WIN

alk’s challenge was to harness the

company’s strengths and channel

them into a leaner, more efficient,

growth-oriented organi zation that

could leverage its size without lim-

iting its fl exibility to compete in a

new global economy. In 2003 he

pulled together the company’s top 100 man-

agers and the board of directors to focus on a new strategic plan for

the company, from the way it manufactures, distributes, promotes and

sells its products to how products are developed. Five key areas of

growth were determined (see box above).

“Th e plan was about deciding where we were going to play, where we

were going to invest and where we were going to win,” Falk says. “As the

retail environment became more competitive, we had to make sure that

we had the right ideas, the right products and the right skill set to drive

1872 Kimberly, Clark & Co. builds the Globe Mill, the fi rst mill in Wisconsin to create newsprint entirely from linen and cotton rags.

1865 Thomas Seymour Scott and Otis H. Ballou start a wholesale paper business in Philadelphia called Ballou & Scott, a forerunner of Scott Paper Co.

1872 Wisconsin businessmen John A. Kimberly, Havilah Babcock, Charles B. Clark and Frank C. Shattuk partner together to begin their new endeavor, Kimberly, Clark & Co.

1874 Scott Paper Co. is founded in Philadelphia by brothers Thomas, Irvin and Clarence Scott and their cousins Thomas Seymour and Zerah Hoyt.

A C E N T U R Y A N D A H A L F OF

I N NOVATION

Strengthening the company’s leader-

ship position in baby/child care, adult

care and family care

Accelerating growth in developing

and emerging markets with a focus on

BRICIT countries (Brazil, Russia,

India, China, Indonesia and Turkey)

Building on the company’s positions

of regional strength in feminine care

Extending Kimberly-Clark Professional

division into higher-margin segments

Expanding Kimberly-Clark Health

Care division globally and adding

higher-margin products

1

2

345

Kimberly-Clark’s Key Growth Areas

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our business to meet the needs of our key customers around the world.”

Once the broader initiatives were agreed upon, the team set specifi c

objectives to measure the company’s progress. Falk says those targets

included annual top-line growth of 3 percent to 5 percent and earnings-

per-share growth in the mid-to-high single

digits every year, along with better returns

on capital. Nonfi nancial goals included beef-

ing up the company’s marketing and innova-

tion eff orts.

To track the eff ectiveness of its marketing,

the company set specifi c brand-equity mea-

sures for each major product line, explains

Falk. And to ensure that product innovation

remained at the forefront, Kimberly-Clark

based its revenue targets on a percentage of

sales from new products. The team even

designed a matrix to measure employee

engagement at every level. “Once the team was

aligned on what we were going to do, we had to

identify the areas in which we had to get better,”

Falk says. “We knew we had to get better at

marketing, and we had to be even more eff ec-

tive in reaching out to our customers.”

INNOVATION = NEWS =

MARKETING

o meet the dual goals of increasing

innovation and ramping up market-

ing, Falk pulled the two seemingly

diff erent tasks into one department,

then hired Anthony J. Palmer to run

it. Palmer, senior vice president and chief marketing offi cer,

had spent most of his career working with some of the world’s top

consumer-packaged-goods companies, including a stint as manag-

ing director in the U.K. for KELLOGG CO. (K), before joining Kimberly-

Clark in 2006. His charge was to build up the company’s marketing

capability and break down barriers between product development

and marketing to ensure that every new idea was grounded in a spe-

cifi c consumer need.

“A brand is a promise, and a product is a delivery of that promise,”

Palmer says. “Companies drive profi tability when they deliver that

promise better than their competition.” With that as the underlying

philosophy, Palmer divides the broader concept of innovation into

three areas. “You can innovate the promise

you are making, you can innovate the prod-

ucts you deliver, or you can innovate with

different communication channels in how

and where you have dialogue with your cus-

tomers around that product,” he says.

He cites Pull-Ups training pants as a case in

point. Anyone who has ever changed a diaper

intuitively understands that once babies start

walking, it is exponentially more diffi cult to get

them to lie down to get their diapers changed.

A more natural way is to change the diaper

with the baby standing up, the same way you

would change a child’s pants. “Th is was a big

opportunity for us to make a slight change to

the basic product [the disposable diaper] and

give our moms another option to care for their

babies,” he says. “Th at’s much more powerful

than just changing the product.”

Another major growth opportunity is the

inevitable aging of the world’s population.

During the next 40 years, 50 percent of the

world’s population growth will come in the

60-and-over demographic, Palmer says. Today,

he says, Kimberly-Clark’s Poise and Depend

brands are clear leaders in the North American

market for bladder-leakage products in terms

of product sales, but the incontinence cate-

gory is only about 30 percent penetrated. Aft er gender-specifi c Depend

brand products were introduced in early 2009, volume jumped 7 per-

cent in the fi rst quarter, says Palmer. “If it fi ts better and works better,

consumers see the value and will pay more for it,” he adds.

Rethinking how consumers use products is only half of the innova-

tion equation, though. Th e other half is in rethinking how Kimberly-

Clark interacts with its consumers, says Falk. Moving away from the

traditional 30-second television ad, the company says it is investing

1913 Scott beginsto manufacture ScotTissue bathroom tissue.

1878 Kimberly, Clark and other investors form the Atlas Paper Co., the fi rst mill in Wisconsin to produce paper largely from ground pulp. Its fi rst product: wrapping paper.

1907 Scott Paper invents Sani-Towels, the fi rst disposable paper towel in America, for use in Philadelphia classrooms to help prevent the spread of the common cold.

1915 Scott Paper shares are fi rst traded on the New York Stock Exchange.

SOURCE: K IMBERLY- CL ARK

»

“Under our open-innovation

program, we work with

outside consultants

to identify new products

and technologies.”

» J O A N N E B A U E R , P R E S I D E N T ,

K I M B E R L Y - C L A R K H E A L T H C A R E

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heavily in nontraditional marketing, such as partnering with CVS

CAREMARK CORP. (CVS) and its ExtraCare Card. Women buying neona-

tal vitamins or baby-care products at CVS pharmacies receive coupons

for Huggies or other Kimberly-Clark products, explains Falk.

Th e company is also building information-

driven Websites for its products. Th e Huggies

site, happyhealthypregnancy.com, off ers week-

by-week pregnancy advice from recognized

experts in the fi eld, along with tips for mix-

ing play with learning, ideas for decorating

a nursery and lots of downloadable cou-

pons. In many parts of Asia, cell phones are

the major method of communication, Falk

says, so Kimberly-Clark consumers there

can sign up to receive a text message when

favorite products go on sale at a particular

store. “We want to give consumers the infor-

mation they want, when and how they want

it,” the CEO explains.

BREAKING BARRIERS

THROUGH OPEN INNOVATION

entral to Falk’s corporate re -

struc turing plan was identify-

ing those areas in which the

company excels and focusing

corporate resources there. Th at

meant breaking through Kimberly-Clark’s

deeply ingrained corporate culture that said

that new products had to be invented in-

house. Th at is particularly important in the

health-care industry, where most of the pure research is being done in

smaller organizations and around the world, Falk says.

In 2008 most of the $1.2 billion in revenue of Kimberly-Clark’s Health

Care division — out of the company’s total $19.4 billion in revenue —

came from its supplies business, including surgical masks, gowns and

gloves, says Joanne Bauer, president of Kimberly-Clark Health Care. It’s a

highly competitive business, explains Bauer, and future growth will focus

on medical devices, where the company has introduced diff erentiated

products that enhance patient care. “Under our open-innovation pro-

gram, we work with outside consultants to identify new products and

technologies that fi t into our strategic plan,” Bauer says. Kimberly-Clark

then buys either the exclusive distribution rights for specifi c products or

the company that makes those products.

The division’s primary growth strategy

centers on health-care-associated infections,

or HAIs — infections acquired by patients in

hospitals or other health-care settings, Bauer

says. Reports of HAIs are on the rise, aff ect-

ing 1.8 million to 3.6 million patients around

the world with an annual total cost impact of

up to $30 billion, she adds. Through open

innovation, Bauer says, her team found a

small, privately held company in Germany

with a patented technology that could help

reduce the incidence of ventilator-associated

pneumonia, one of the most acute HAIs.

Kimberly-Clark acquired Microcuff GmbH

in 2007 and now owns that technology.

Another of the division’s key infection-fi ght-

ing products, Integu Seal, is made in partner-

ship with Advanced Medical Solutions Group

PLC in the U.K., according to Bauer.

GOING GLOBAL

any of the company’s

top-line growth objec-

tives are dependent on

expanding its reach

into the global market,

particularly in developing and emerging countries, says Erin Swanson,

an equity analyst with Morning star Inc. While Kimberly-Clark’s con-

solidated revenue increased by more than 6 percent annually during

the past fi ve years, growth from developing and emerging markets

averaged around 15 percent per year, she says, and these economies

now account for nearly 30 percent of the company’s total sales, up

from about 20 percent in 2003. “We believe Kimberly’s lack of pene-

tration in many nondiscretionary categories, such as diapers, pro-

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N 1929 Kimberly-Clark lists on the New York Stock Exchange.

1921 K-C introduces Kotex sanitary napkins, which, because of social taboos at the time, were sold in plainly wrapped boxes.

1924 K-C introduces Kleenex Facial Tissue as a disposable, economical solution for makeup removal.

1949 Kleenex debuts one of the largest advertising signs ever above Times Square.

1932 Kleenex introduces its Pocket Pack Tissues.

1931 Scott expands its paper-towel business to the home market with rolled ScotTowels, which become the country’s best-selling paper towel.

“A brand is a promise.

Companies drive

profi tability when they

deliver that promise better

than their competition.”

» A N T H O N Y J . P A L M E R ,

S V P A N D C H I E F M A R K E T I N G O F F I C E R

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vides it with an opportunity to continue driving solid top-line growth

in these markets,” Swanson says.

Sustaining that growth requires an in-depth understanding of the

local culture and extensive education of both consumers and local

employees, explains Robert W. Black, group

president of Developing & Emerging Markets.

For example, in Malaysia, because of religious

issues, there is very little open discussion

about women’s health and hygiene. To coun-

ter that, the local management team goes to

the schools to teach the young women. “We

help them to understand their own bodies

and then teach them how to use feminine-

hygiene products to care for themselves,”

Black says.

Because local customs can be a big factor

in demand for personal-care products,

Kimberly-Clark tailors each rollout strategy

to a country’s needs. In Saudi Arabia, for

instance, he says there is a large market for

facial tissue but little demand for bath tissue.

Taiwan is just the opposite, he says, with a big

bath-tissue market. In Latin America, a major seller is a reusable

kitchen towel, explains Black. “We are also working hard to increase

the penetration or use of products through diff erent kinds of packag-

ing,” he adds, “to make them more aff ordable.”

MANAGING THROUGH TOUGH TIMES

he one challenge that Falk says he didn’t foresee was the

severity of the global recession that hit in 2008, driving

down demand as consumer spending dried up around the

world. Th e economic slowdown hasn’t dampened the com-

pany’s ambitious plans, though. In 2008 Kimberly-Clark

raised prices across the board to partly recover the rise in

commodity prices. So far those price increases have held, according

to Christopher Ferrara, a research analyst with Bank of America

Merrill Lynch, a division of BANK OF AMERICA CORP. (BAC). In a

research report published July 23, 2009, he said that Kimberly-Clark

seems to have found the “sweet spot” between favorable pricing and

a drop in commodities prices during the past year, and he expects

earnings per share, excluding restructuring charges, to climb 6.8

percent in 2009.

While Kimberly-Clark can’t completely ignore the reality of the

current market — the company trimmed its

global salaried workforce by 1,600 in June,

the CEO confi rms — it also can’t aff ord to

pull back on its long-term growth initiatives,

Falk says. “In a tough economy, it’s even

more important to invest in innovation and

marketing,” he explains. “Otherwise you

make it easy to be caught by the more value-

oriented players in the market.”

Th is year the company introduced the Scott

Naturals line of paper products, made from

between 40 percent and 80 percent recycled

materials, as part of its ongoing commitment

to sustainability. Its new Huggies Pure and

Natural diaper line has no fragrances or dyes

and uses recycled polymers in its packaging,

explains Falk. Th ey cost more than tradi-

tional products, but some consumers are

willing to pay more. “Most moms are not looking for a perfect environ-

mental solution,” he says, “but they do want to feel better about the

products they are buying.”

Th e company also recently announced tighter fi ber-sourcing stan-

dards that may boost global forest conservation but could potentially

increase its own operating costs. Kimberly-Clark has set an ultimate

goal of obtaining 100 percent of its wood fi ber from environmentally

responsible sources, using fi ber products certifi ed by the Forest

Stewardship Council or recycled materials in all of its paper-based

products. Kimberly-Clark’s goal is for 40 percent of its North

American tissue fi ber — representing an estimated 600,000 tons — to

be either recycled or FSC-certifi ed by the end of 2011, an increase of

more than 70 percent from 2007 levels. “Sustainability is a trend, not

a fad,” Falk says. In the long run, he adds, “being a good steward of

the environment is also good for business.”

To read about Thomas J. Falk’s “complexifi cation” blog and how it yields 7,000 hits a

month, visit nysemagazine.com/kimberly-clark.

SOURCE: K IMBERLY- CL ARK

1989 K-C invents disposable training pants: Pull-Ups are launched without test marketing and become an instant success.

1978 K-C introduces Huggies disposable diapers.

1995 K-C announces a $9.4 billion merger with Scott Paper.

1997 K-C introduces Huggies Little Swimmers, a line of disposable swim diapers.

2000 K-C acquires Safeskin Corp., a leading maker of high-quality disposable gloves.

2009 The Dow Jones Sustainability World Indexes select K-C as the sustainability leader in the Personal Products category for the fi fth consecutive year.

Just the Facts

F O UN D ED 1872 in Neenah, Wis.

W O RL D HE A D Q UA R T ERS Dallas

2008 SALES $19.4 billion

2008 NET INCOME $1.7 billion

EM P L OY EE S 53,000

G L O BA L RE ACH Products sold in 150 countries;

administrative, manufacturing and operating

facilities in 35 countries

PA P ER INN OVAT O R The company says it was

the fi rst to put toilet paper on a roll and that it

invented paper towels and facial tissue.

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ED FRITSCH

PRESIDENT AND CEOHIGHWOODS PROPERTIES INC. (HIW)

An equity REIT in the business of acquisition, development and operation of rental real estate properties

ANUPAM NARAYAN

PRESIDENT AND CEORED LION HOTELS CORP. (RLH)

A Western U.S. hospitality and leisure company primarily engaged in the ownership, management, development and franchising of upper midscale, full-service hotels

DUNCAN NIEDERAUER

CEONYSE EURONEXT (NYX)

The world’s largest and most diverse exchange group, home to more than 4,600 listed issuers

CHRISTINE ROMANS

MODERATOR

Host of the weekend business roundtable program Your $$$$$ and a featured correspondent for American Morning, CNN

DON WOOD

PRESIDENT AND CEOFEDERAL REALTY INVESTMENT TRUST (FRT)

An equity REIT specializing in the ownership, manage-ment and redevelopment of retail and mixed-use properties

From left:

Nine CEOs gather to share management strategies and ideas for becoming part of the economic solution.

the road to rS C E N E R Y I L L U S T R A T I O N

B Y J O H N P I R M A N

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recovery

BILL LAPERCH

PRESIDENT AND CEOABOVENET INC. (ABVT)

A provider of high-bandwidth connectivity solutions, primarily to corporate enterprise clients and communi ca -tions carriers

RON WAINSHAL

CEOAIRCASTLE LTD. (AYR)

A global company that acquires high-utility jet aircraft and leases and sells them to airlines worldwide

IRV RICHTER

CHAIRMAN AND CEOHILL INTERNATIONAL INC. (HIL)

A project management, construction management and construction claims fi rm with 2,300 professionals in 80 offices worldwide

GREG MILZCIK

PRESIDENT AND CEOBARNES GROUP INC. (B)

A diversified global manufacturer and logistical services company that provides component manufacturing and operating service support and solutions

ANTHONY J. ORLANDO

PRESIDENT AND CEOCOVANTA HOLDING CORP. (CVA)

A global developer, owner and operator of infrastructure for the generation of energy from waste

P H O T O G R A P H S B Y

A N D R E W F R E N C H

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Has the dust settled? Can we see a day when we’re talking recovery, or are we still playing defense?

IRV RICHTER I don’t think the dust has set-

tled at all. I think that most of the talk you

hear about the end of the recession is wishful

thinking. We’re still being adversely aff ected,

we have nearly 10 percent unemployment,

and we have capital markets that are still not

lending money. Anybody here who’s in the

REIT business or the development business

can’t get capital. And that doesn’t sound to me

like the end of a recession. I think we’re at

least a year away from a real recovery.

ANTHONY J. ORLANDO We’re expecting the

unexpected. Whatever the predictions are, don’t

take anything for granted. We went to market a

few months ago to raise some capital — we’ve

already found good ways to deploy it. Th ere’s

still so much distress in the market, so many

people who don’t have capital, that when we

see the opportunity to raise it at a reasonable

cost, we take it. Th ere’s also a lot of uncertainty

about what the market will hold six months,

12 months out, even in our business.

GREG MILZCIK Most of the markets that we

serve have started to show some level of sta-

bility. But you really have to look at the new

normal. When you look at the demographics

of Western countries and Japan, and at the

personal balance sheets of individuals, there’s

been a fundamental shift . With the fi scal mon-

etary policies in the U.S., you’re inevitably

going to run into infl ation, either of commod-

ities or other costs. We expect to see more of

our growth prospects overseas and in dol-

lar-denominated situations because of the

potential devaluation of the dollar.

ANUPAM NARAYAN Th e new norm for the

consumer is austerity. People are being more

careful about spending, so we have to provide

more value and make sure we’re delivering the

services they expect. And my expectation is

that this will continue. To some extent I believe

we got into this recession because everybody

was saying we’re in a recession and the head-

lines kept talking about recession, recession,

recession. So I welcome people actually saying

we’re at the end of the recession, because I hope

we’ll talk our way out of it just as easily. And

though in our business — hotels — we’re not

seeing a lot of change yet, we’ve seen some

glimmers of hope. We’ve seen some bookings

fi rm up, businesses fi rm up, travel fi rm up.

RON WAINSHAL We’ve seen a lot of unbeliev-

able volatility in our business. Fuel prices, for

example, are a big input cost for our custom-

ers. Exchange rates have been extremely vol-

atile too. So I think the recovery will be slow

and uneven. One of the trends we’ve seen is

that the airlines that are suff ering the most

are the ones that cater to the long-haul inter-

national type of high-end traveler. Econ omy

travel is down as well, but it’s hanging in

there a lot better. People still want to take

their vacations; they just may not go in the

same style or travel to the same places. I

think it will continue to be a growth busi-

ness, just in a different way.

“You can do things to tighten the belt, and as long as you communicate it very directly, your employees will understand.”

DUNCAN N IEDERAUER NYSE Euronext

CEO FAST FACT “More than half of NYSE Euronext’s revenues and earnings come from outside the U.S.”

E C E N T N E W S R E P O R T S

suggest that many economists think

the recession is behind us. But in a

roundtable discussion, excerpts of

which appear on these pages (with more at

nysemagazine.com/roundtable), nine chief

executives from various industries beg to dif-

fer. In a spirited discussion, they also reveal

strategies that have worked during these try-

ing times, benefi ts their companies have

experienced from the crisis, and the keys to

— and challenges of — being a corporate

leader under today’s intense scrutiny.

R

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BILL LAPERCH Even though the economy

has been in chaos, bandwidth keeps grow-

ing. Every business you look at just needs

more and more. But the way we keep our

finger on the pulse of the economy is the

way customers are buying. Three or four

years ago, customers were buying to sup-

port new applications, new business ven-

tures or new locations. Today customers

have us in and say, “Take a look at this leg-

acy network. It costs too much. It doesn’t

provide enough capacity. What can you do

about it?” And so CFOs are now the decision-

makers, instead of CIOs and CTOs. They

want to know, “How do you affect the bot-

tom line, given that we’re not growing as

fast as we used to? Perhaps we can both save

on expenses and upgrade our technology.”

What one change during the past year has been success-ful in helping you navigate the market turmoil?

DON WOOD Finding good people was hard

for a long time. Competition was high, and

you were paying a lot for those folks. We

wound up bulking up a little too much. By

rationalizing the business and making those

painful cuts, we accomplished two things:

More senior executives are doing more of the

decision-making, such as renegotiating con-

tracts, and we traded up in terms of fi lling in

some spots with individuals who weren’t

available during the past fi ve years.

DUNCAN NIEDERAUER We’ve had a simi-

lar experience. With what happened in

financial services, people were walking

through our doors offering to work here for

numbers that they wouldn’t have accepted

two or three years ago. At a company of our

size, with just a few thousand employees, if

you can get 50 to 100 of those people, you

can change how the entire company thinks

and operates, and we absolutely took advan-

tage of that.

ED FRITSCH We’ve been successfully navi-

gating through this economic turmoil by

sticking to the key tenets of our long-term

strategic plan, which includes customer diver-

sifi cation, liquidity, quality real estate, team

building and constructive internal debates. By

nature, real estate is a cyclical business, so our

plan, unveiled in January 2005, was dual

designed so as to protect our company on the

downside and take advantage of the upside,

and it has worked. I don’t believe a company

can be successful over the long term if it con-

tinually fl ip-fl ops on strategies or structures

itself solely to chase the upside. We are also

presently benefi ting from customers seeking

landlords who have strong balance sheets and

from accessing a higher-quality talent pool

from which we are drawing prospective

employee candidates.

d

“More senior executives are doing more of the decision-making, such as renegotiating contracts.”

DON WOOD Federal Realty Investment Trust

“The laws and regulations that are going to be put in place will shift the ground we work on.”

ANTHONY J . ORLANDO Covanta Holding Corp.

CEO FAST FACT “Federal Realty has increased its dividend to its shareholders every year since 1967.”

CEO FAST FACT “Covanta services 20 million people with 44 facilities that convert waste to clean energy.”

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RICHTER I don’t know how you execute a

strategic plan through this economy that

was written before this economy collapsed.

While we do expect to continue growing

our business through this recession, we

have focused on realigning our costs to the

reality of much slower growth and being

much more conservative in how we spend

our money.

MILZCIK Don’t waste a good crisis. We sig-

nificantly increased our resources around

sales activities. We found technicians, engi-

neers and division managers, put them through

a three-level training process on sales man-

agement, assigned them to customers and

started pegging away. It’s not the most effi-

cient process in the world, but we’re seeing

results. In automotive, for example, we believe

every dollar we pick up now is worth two

dollars in the future, because North Ameri-

can auto production may go from 8 million

vehicles to a new normal of 14 million. With

a leaner organization, fixed costs taken out,

those two dollars are going to pay back

amply later on.

NARAYAN It’s not easy for any of us right

now, with layoffs and cutbacks and the tak-

ing away of different benefits. So you have

to communicate as much as you can. That’s

what we’re trying to do with our people,

telling them what things are like, what’s

going to make a difference in the future and

why we need that. We’ve also successfully

made certain changes in the organization,

and the recession gives us an opportunity to

reorganize in the most efficient manner,

which perhaps we could not have done when

things were good.

NIEDERAUER We’re communicating with

our customers more than we ever have, and

we’re communicating with our employees

much more than we ever did. You can do

things to tighten the belt, and as long as you

communicate it very directly with your employ-

ees, I think they understand.

How do you lead through all the mistrust of the American economy, the pitchfork popu-lism that has taken hold against wealth creators and corporate leaders, and the uncertainty coming out of Washington?

WOOD You have to start with track record.

In our case, we’ve increased our dividend

every year for the past 42 years, a record

you can’t accomplish without great raw

materials and a solid reputation. If you

didn’t have a great reputation in ’05, ’06 and

’07 but people had to do business with you,

they don’t need you today. It’s very, very

hard without a solid reputation to be able to

say, “Well, now I’m different. Stick with me

a little bit longer and we’ll get through.”

“Some things must be allowed to fail. If the government continues providing safety nets, the word risk becomes extinct.”

ED FR ITSCH Highwoods Properties Inc.

“Make sure we have a well-educated workforce so we can continue to compete on a global basis.”

B I LL LAPERCH AboveNet Inc.

CEO FAST FACT “Highwoods operates offi ce, industrial, retail and residential properties, mostly in the Southeast.”

CEO FAST FACT “AboveNet is providing the fi ber for the two new NYSE Euronext data centers.”

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ORLANDO You focus on your employees, your

customers, your business partners, and you

establish trust there. And that goes back to

communication, especially face-to-face. It is

also crucial that we engage policymakers in

Washington: For Covanta the focus is energy

policy. But I’d expect virtually every business

to be aff ected one way or another — the laws

and regulations that are going to be put in

place will shift the ground we work on.

MILZCIK It is difficult to make a decision

on, for example, where to invest or where to

put a plant if you think that government

regulation will have an adverse financial

impact on growth. In fact, with more than a

trillion dollars’ worth of deficits for the

foreseeable future and the U.S. corporate

tax rate globally uncompetitive, business

leaders are looking outside the U.S. for

opportunities and growth. One of the big-

gest impediments to improving the position

of U.S. manufacturing is the high corporate

tax rate assessed on domestic companies.

NIEDERAUER I’m not an economist, but I

don’t know how they’re able to make such

firm predictions when the administration

has yet to give us clarity on three or four

decisions that could change that outcome

entirely, not incrementally. I just don’t think

anyone has enough information.

You have 30 seconds in the elevator with Timothy Geithner, Ben Bernanke and Barack Obama. What do you say?

NIEDERAUER I recently had the opportu-

nity to speak with two of the three. My first

point was that we all understand the recov-

ery has to be funded, but let’s do so without

impairing the ability of U.S. companies to

compete globally. Some of the proposals could

make it very diffi cult for U.S.-headquartered

multinationals to compete effectively. My

second point was that we have an unneces-

sarily complicated regulatory framework in

the U.S., and we recently learned that the

transparent markets were the only ones that

worked and stayed open for business through-

out the worst crisis most of us will probably

see in our working lives. So how about if we

insist that all these complex and well-developed

OTC markets get under the spotlight a little

bit? What comes along with being in those

businesses has to be put in the sunshine. My

third point was a reminder that entrepre-

neurs and their innovative spirit have been

the American engine since before any of us

in the room were born, and that’s going to

be the case forever. As someone said to me

the other day, “When did corporate profi t-

ability start to be viewed as a zero-sum

game?” So the last point I left our leaders in

Washington with was that you can’t love jobs

and hate the people who create them. I want

them to look at every policy they think about

through that lens.

WAINSHAL I would say the government

should be wary of unintended consequences.

As a fi nancial company, we saw all sorts of

radical shift s happening last fall. For example,

in the wake of the current crisis, the govern-

ment of Ireland decided to guarantee deposits

and, as a result, a great deal of money went out

of the U.K. and into Irish banks. So my gen-

eral guidance would be to stay out of the way

as much as you can.

“The administration is trying to reach a consensus. But right now they should lay out a plan and stick with it.”

ANUPAM NARAYAN Red Lion Hotels Corp.

“My general guidance [to Washington] would be to stay out of the way as much as you can.”

RON WAINSHAL Aircastle Ltd.

CEO FAST FACT “Red Lion Hotels can be found in the western U.S. from Seattle to Disneyland to Denver.”

CEO FAST FACT “Aircastle owns 131 aircraft and has lessees located in 35 countries.”

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NARAYAN I have a slightly different per-

spective. I believe the government should

approach this just as all of us are approach-

ing this at our companies. The reason we’re

having a lot of debate is that what the gov-

ernment wants to do is not being clearly

spelled out. The fact is, we are in a mess.

There’s no easy solution. It’s not going to

come quickly. And it’s going to be painful

for a period. It’s going to hurt some more

than others. And of course, everybody stands

up and says it’s going to hurt me more. The

administration is trying to reach a consen-

sus, and I think that’s great, but right now

they should lay out a plan and stick with it.

You change your tactics, move stuff around

and adjust for the realities of the world, but

at the end of the day you stick with it. So my

counsel of 30 seconds is: Be specific, lay it

out, and don’t sugarcoat it.

LAPERCH I would say to shift your focus

from looking over our shoulders to making

sure we have an adequate, well-educated

workforce so that we can continue to com-

pete on a global basis.

FRITSCH Government can’t and shouldn’t

regulate everything or try to be all things to

all people. Some companies and people must

be allowed to fail. If the government contin-

ues providing expensive safety nets, the word

risk becomes extinct. Taking risks is a key

component of capitalism and a driver of our

country’s economic growth.

ORLANDO I’d say do the right thing and don’t

worry about the next election. And I would ask:

What do you plan to do on climate change?

Because this is the issue that will have the most

lasting impact on our grandchildren. It will not

be fi nancial regulation, taxes or even health

care. Looking back 50 years from now, it will be:

Were we able to shift the way we manage

energy? Th e entire economy runs off energy,

and if the scientifi c predictions are even close to

being accurate, we have a big challenge.

“With the U.S. corporate tax rate globally uncompetitive, leaders are looking outside the U.S. for growth.”

GREG MILZC IK Barnes Group Inc.

“We’ve focused on realigning our costs and being more conservative in how we spend.”

I RV R ICHTER Hill International Inc.

Read the CEOs’ views on sustainability spending at

nysemagazine.com/roundtable.

CEO FAST FACT “Barnes Group has been in existence since 1857 and has more than 60 plants worldwide.”

CEO FAST FACT “Hill clients include government agencies, big companies and real estate developers.”

CEO FORUM: How important is social responsibility in a downturn?

>> URSULA M. BURNS, Xerox Corp. (XRX) >> PETER A. DARBEE, PG&E Corp. (PCG) >> WILLIAM JOHNSON, H.J. Heinz Co. (HNZ) >> EDWARD LUDWIG, Becton, Dickinson and Co. (BDX) >> DAVID O’REILLY, Chevron Corp. (CVX) >> KEN POWELL, General Mills Inc. (GIS) >> JAMES ROGERS, Duke Energy Corp. (DUK) >> IVAN SEIDENBERG, Verizon Communications Inc. (VZ) >> REX TILLERSON, Exxon Mobil Corp. (XOM) Read their answers at nysemagazine.com/ceoforum.URSULA M. BURNS

ON THE

WEB

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O SE T TA STONE PRESIDENT AND

CEO Tom Adams knows the value

of speaking like a local. Born to

Swe dish parents, Adams learned

French while living in France as a child.

When he moved with his family to England

at age 10, he picked up English. Adams,

now 37, speaks four languages fl uently and

a few others well enough to get by when

he’s traveling. “I love languages,” the CEO

says. “If you learn them successfully and

you’re able to connect with people, your

life experiences are so much deeper.”

Language immersion, Adams says, is

what differentiates Rosetta Stone from other

self-study aids. In its library of more than 30

software products (sold via CD-ROM or the

Internet), nothing is translated. Students

learn by completing a series of interactive

exercises that build on previous lessons. The

programs replicate the way children learn

their native languages, Adams says,

and are quicker and more effective

than translation-based methods.

A graduate of France’s INSEAD

and a former commodities trader,

Adams says he joined Rosetta Stone

as CEO after a close high school

friend introduced him to Allen Stoltzfus,

who founded the company in 1992. Stoltz-

fus called his product Rosetta Stone after

the artifact that unlocked the secrets of

Egyptian hieroglyphics for linguists. Since

Adams became CEO in 2003, revenues

have grown to a reported $209 million last

year, from $25 million in 2004. Adams still

makes time for new languages. Recently

he’s been learning Russian — and, as a

new father, baby talk from his daughter.

R

DA

VID

DE

AL

BIO FACTS

AGE 37

CEO S INCE 2003

EDUCATION BA from Bristol University, Britain; MBA from INSEAD, France

PREV IOUS AFF I L IAT ION Commodities trader, Trafigura

FAMILY Married with a daughter

C E O Q & A >> T O M A D A M S , P R E S I D E N T A N D C E O , R O S E T T A S T O N E I N C . ( R S T )

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Why are your products so engaging?

People have a defi ned idea of what learning a

language is like. Th ey sit through years of lan-

guage instruction or buy tapes. But our off ering

is very diff erent. Th e key is to have someone try

a language they’re not familiar with. It’s eff ec-

tive if you know a little of the language already,

but it’s best to demonstrate it in a completely

unknown language so you get the full eff ect.

Within fi ve minutes, they’ve already learned —

eff ortlessly. It’s an aha! moment.

What else accounts for the success?

First, we invested in the right technologies,

such as speech recognition. Second, we fi g-

ured out how to get people to try our product.

Rather than putting it on store shelves or in

catalogues, we off er demos online and at kiosks

so people can see how it works. Right now we

have about 160 kiosks in airports and shopping

malls across the country. We are able to open

kiosks quickly in high-traffi c areas when space

becomes available and take down ones that are

not performing. We also developed print and

online advertising to drive people to a demo,

which has increased sales.

How has the company changed since

you became CEO?

We’ve grown to 1,500 employees from about

100. We managed to transform the company

organizationally while making the culture an

even greater asset. We’re very entrepreneurial.

We test a gazillion ideas throughout the com-

pany — in marketing, product development,

Web development and our call centers. We also

make sure that any idea is scalable, structured

and process-oriented. Everyone is aligned for

the mission: to deliver the best technology-

based solutions for learning languages.

How has the recession affected Rosetta?

We’ve suff ered from lower foot traffi c in air-

ports, reduced leisure and business travel, and

a weaker sense of urgency about globalization.

Still, we’ve grown dramatically in the past two

years. People are investing in themselves like

never before. Language, and the ability to com-

municate with people from other cultures, is

increasingly important. People are more on

their toes about remaining competitive and

having the right skills for tomorrow.

Who are your customers?

Consumers account for 80 percent of reported

sales, with institutions such as schools, govern-

ment agencies and corporations making up the

rest. Corporations off er high potential for us.

Th is economic environment has made com-

panies stop and evaluate whether they have

the right, most cost-eff ective learning strategy

for employees. A good example is THOMSON

REUTERS CORP. (TRI). A language-training audit

a few years ago revealed that the company was

spending a lot more than it had thought on

ad hoc employee immersion classes with pri-

vate tutors. Th omson Reuters did a trial with

us, and now it’s a top customer.

What’s your international strategy?

While only 5 percent of our sales come from out-

side the U.S., our customers span more than 150

countries. Still, we need to fi nd the local inter-

pretation of a universally sound business model.

Kiosks work very well in the U.S., but they’re not

a common sight in the rest of the world. We have

offi ces in London and Tokyo, and we will open

offi ces this year in South Korea and Germany.

We haven’t entered China yet because of piracy

issues. International growth is our biggest chal-

lenge and our biggest opportunity.

What are your latest innovations?

This summer we released a new Web-based

service, Rosetta Stone TOTALe, that lets users

practice with native speakers in real time. If

you’re learning French, for example, you’ll be

able to connect with someone who’s French

and who wants to practice English. We’re also

focused on mobile technology.

What keeps you up at night?

Th e prospect of competition. Right now no

one else is really passionate about technology-

enabled language learning. But we’re not com-

placent. This is a capitalist society, and it’s

possible to have a good idea, develop it and

build a successful business very rapidly.

BREAKING THE LANGUAGE BARRIERRosetta Stone’s Tom Adams is exploring new technologies and new markets to keep the company growing.

B Y J E N N I F E R G I L L

“THIS ECONOMIC ENVIRON-MENT HAS MADE COMPANIES STOP AND EVALUATE THEIR LANGUAGE-LEARNING STRATEGY FOR EMPLOYEES.”

DA

VID

DE

AL

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Still others, such as France’s VIVALIS (VLS), have

developed stem-cell solutions for manufactur-

ing vaccines and antibodies, while fi rms such as

the Nether lands’ PHARMING GROUP NV (PHARM)

are working to address genetic disorders and

diseases associated with aging. Th e largest inde-

pendent vaccine company, with a market cap

of $1.54 billion (€1.05 billion) as of Sept. 24, is

Netherlands-based CRUCELL NV (CRXL).

The number of biotech products from

European fi rms has risen rapidly in just the

past few years. According to a 2009 report

from Ernst & Young, in 2006 about 400 bio-

tech drugs from EU companies in the pipe-

line had made it to Phase II clinical trials.

(Typically, Phase I trials are used to judge a

drug’s safety using a small group of patients;

in Phase II, drugs are assessed for their effi -

cacy, especially compared with existing treat-

ments.) By 2008 the number had jumped 50

percent, to about 600 products.

Venture funding and investment also fol-

lowed the industry across borders. Despite the

global economic crisis, in 2008 $1.4 billion went

to biotech venture funding in Europe. “In gen-

eral, biotech funding in the U.S. has always been

better,” confi rms Onno van de Stolpe, CEO of

Galapagos. “EU investors are a bit more risk-

averse and look at revenue/earnings potential

rather than future potential value.” Th is attitude

has helped keep European companies focused

on results. Revenues of public European biotech

fi rms in 2008 were up 17 percent from a year

earlier, while R&D costs increased by only 3 per-

cent. By comparison, U.S. biotech revenues were

up only 8.4 percent for the same period.

“Any company based on robust science that

invests in its science in order to keep its leader-

ship and competitive advantage will generate

innovative products and sustainable growth and

attract funds and strategic partners, whether the

companies are in the U.S. or in Europe,” asserts

André Choulika, founder and CEO of French

biotech fi rm CELLECTIS SA (ALCLS).

To help investors better track the industry,

last year NYSE Euronext launched Next Bio-

tech, the first Eurozone biotech index (see

chart, opposite page). Composed solely of

biotech companies listed on NYSE Euronext’s

European markets, the index boasts 20 com-

ponents with a combined market cap of more

than $4.8 billion (€3.3 billion). From Sept. 10,

2008 to Sept. 10, 2009, the index has gained

27.1 percent, compared with losses in the S&P

500 (down 15.3 percent) and the S&P Europe

350 (down 9.5 percent) in the same time period

(see chart, page 40).

SCIENTIFIC ADVANCES

Th e industry’s rapid European expansion is

largely due to the promise of biotechnology

in medicine. Biotechnology off ers the possi-

bility of understanding how our genetic

makeup aff ects and interacts with diseases,

explains Choulika. By gaining knowledge of

those DNA traits related to ailments, research-

ers can develop gene-based treatments that

have the potential to directly address medical

conditions, rather than simply alleviate the

symptoms of those diseases. With biotech-

nology, for example, it is now possible to

develop genetic tools to regenerate damaged

cells and tissue, an approach that is already

proving to be an eff ective way to treat heart

disease and some forms of cancer, he adds. In

the future, says Choulika, “a disease will not

EUROPE’S BIOTECH BOOMWith new technologies and government support, the number of biotech fi rms and new products on the Continent is rising fast.

B Y J O H N R . Q U A I N C H A R T S B Y T O M M Y M C C A L L

I O T E C H N O L O G Y C O M P A N I E S S T E R E O T Y P I C A L L Y have hatched in sun-soaked

California with researchers and scientists unlocking new treatments for obscure dis-

eases. But the past decade’s advances in genetic knowledge have broadened bio-

technology’s scope to include more widespread diseases and have expanded R&D

to many corners of the world, particularly Europe, where governments are working to encour-

age growth in the health-care industry. Nine NYSE Euronext IPOs of Europe-based biotechnol-

ogy companies have listed in the past three years, bringing the total number listed to more

than 20. While fi rms such as ABLYNX NV (ABLX), TIGENIX NV (TIGN) and GALAPAGOS NV (GLPG) in

Belgium are addressing common ailments such as osteoporosis and joint damage, other fi rms,

such as France’s EXONHIT THERAPEUTICS SA (ALEHT) and Belgium’s ONCOMETHYLOME SCIENCES SA

(ONCOB), are developing genetic tools for detecting cancer early and personalizing treatments.

B

38

S E C T O RS P O T L I G H T >> O N T H E E U R O P E A N B I O T E C H I N D U S T R Y

TO HELP INVESTORS TRACK THE INDUSTRY, NYSE EURONEXT LAUNCHED THE NEXT BIOTECH INDEX.

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Ablynx NV (ABLX)

$418.3 (€284.8)

Amsterdam Molecular

Therapeutics Holding NV (AMT)

$67.7 (€46.1)

Cellectis SA (ALCLS)

$187.8

(€127.9)

Crucell NV (CRXL)

$1,544.5 (€1,051.5)

Devgen NV (DEVG)

$220.2 (€149.9)

Fornix BioSciences NV (FORBI)

$95.7 (€65.2)

Genfit SA (ALGFT)

$135.5 (€92.3)

genOway SA (ALGEN)

$27.9 (€19.0)

Hybrigenics SA (ALHYG)

$54.2 (€36.9)

Innate Pharma SA (IPH)

$108.8 (€74.1)

Ipsogen SA (ALIPS)

$58.1 (€39.6)

OctoPlus NV (OCTO)

$77.2 (€52.6)

OncoMethylome Sciences SA (ONCOB)

$118.3 (€80.6)

Pharming Group

NV (PHARM)

$89.7 (€61.1)

ThromboGenics NV (THR)

$568.5 (€387.3)

TiGenix NV (TIGN)

$164.8 (€112.2)

Transgene SA (TNG)

$595.3 (€405.6)

Vivalis (VLS)

$224.5 (€153.0)

20

08

TO

TA

L R

EVE

NU

E (

mil.)

YEAR FOUNDED

’75 ’80 ’85 ’90 ’95 ’00

COMPANY LOCATION

MARKET CAP

Belgium (6)

France (9 companies)

indicated by size of bubble

Netherlands (5)

$1

$10

$100

$0.5

$5

$50

$0.2

$0.1

$2

$20

$200

$500

Galapagos NV (GLPG)

$251.2 (€171.1)

Company (TICKER)

MARKET CAP (in millions)

$1,500

$500

$100

ExonHit Therapeutics SA (ALEHT)

$223.9 (€152.5)

Ablynx NV Focuses on discovering and developing antibody-derived proteins

Amsterdam Molecular Therapeutics Holding NV Treats orphan diseases using gene-therapy technologies

Cellectis SA Develops meganucleases for use in genome surgery

Crucell NV Develops, produces and markets vaccines and antibodies that prevent or treat infectious diseases

Devgen NV Specializes in biotech solutions designed to protect agricultural crops

ExonHit Therapeutics SA Uses propri-etary gene-profiling technology to identify gene variants that produce abnormal proteins

Fornix BioSciences NV Focuses on allergy treatments and diagnostics

Galapagos NV Focuses on drug dis-covery and works with various part-ners on treatments for bone and joint diseases

Genfit SA Develops drugs for the pre-vention and treatment of cardiometa-bolic and neurodegenerative disorders, such as prediabetes/diabetes, athero-sclerosis, dyslipidemia, obesity and Alzheimer’s

genOway SA Develops genetically modified and high-value-added bio-logical models to improve the accuracy of treatment targets and drug screening

Hybrigenics SA Conducts pharma R&D against cancer and performs protein interaction studies for life scientists

Innate Pharma SA Focuses on immu-notherapies to treat various cancers

Ipsogen SA Develops molecular diag-nostic tests designed to personalize cancer treatment

OctoPlus NV Offers drug-delivery technologies for the controlled release of biotech therapeutics

OncoMethylome Sciences SA Develops genetic diagnostic tests for the early onset of cancer

Pharming Group NV Develops products for treatment of genetic disorders, aging diseases and nutrition

ThromboGenics NV Discovers and develops treatments for eye and vascular diseases and cancer

TiGenix NV Specializes in the use of stem-cell technology to develop cellular repair treatments for such ailments as cartilage damage

Transgene SA Develops gene-based vaccines and immunotherapy prod-ucts for the treatment of cancer and infectious diseases

Vivalis Focuses on the development of stem-cell solutions for manufactur-ing vaccines and antibodies

NEXT BIOTECH: WHAT THEY DO THE WORLD

OF EUROPEANBIOTECHThe 20 fi rms that make up NYSE Euro next’s Next Biotech index vary in age and size and come from three countries.

All data as of Sept. 24, 2009

SOURCES: RESPECTIVE COMPANIES

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be seen as symptoms to be healed but as a

DNA-based malfunctioning that can be fi xed

with less fatality.”

UNITED GOVERNMENT SUPPORT

To bolster biotechnology, the EU has played an

increasing role in developing a consistent set of

rules, regulations and incentives among mem-

ber nations. Last year the EU Commission

invested $118 million in biotech research. But

perhaps more important was the passage of

three proposals that make up the so-called

pharmaceutical package in December 2008.

Th e long-awaited rules provide a uniform

framework for regulating new drugs, in the

hope of easing the expense to companies that

have had to deal with multiple regulations and

approval processes in diff erent countries.

The issue of multiple patent filings and

approvals across the European continent is

also improving, say biotech fi rms. “Th e posi-

tive is that more and more countries are get-

ting involved with the Patent Cooperation

Treaty,” says Choulika. Simplifying European

patent legislation has helped, but the industry

still faces patent problems because of the com-

plexity of some novel therapies, which require

tremendous biotechnology knowledge on the

part of patent examiners. Expanding that

knowledge base should help in the future, as

should avoiding the tendency to overregulate,

say biotech fi rms.

“Europe, particularly France, has a world-

leading position in orphan diseases,” adds

Choulika, referring to uncommon diseases that

require specialized medicine. This is partly

attributed to the so-called orphan regulation

passed by the EU in 1999 and 2000. Th e legis-

lation adopted international criteria for

orphan designation and provided incentives,

such as 10-year market exclusivity and a

streamlined approval process, to encourage

the development of drugs aimed at smaller

markets. According to EuropaBio, the Euro-

pean Assoc iation for Bioindustries created in

1996 to provide a voice for the biotech indus-

try, the EU regulation has spurred innovation.

By 2005 it had covered more than 450 applica-

tions for orphan designation, of which 22 were

later approved for market.

European biotech chief executives say they

are encouraged by government eff orts, both

the EU’s and individual countries’, to support

their industry. “Th ere has certainly been more

support for R&D from the French govern-

ment,” says Philippe Archinard, CEO of France’s

TRANSGENE SA (TNG), pointing to its research

tax credit program, which refunds up to 50

percent of every euro spent on research and

development. For Transgene that amounted

to €6 million ($8.8 million) in 2008, “certainly

an incentive to grow our business.”

NOT GOING IT ALONE

In Europe, biotech fi rms do not take the lone-

wolf approach favored by many companies in

the industry’s early speculative days. Today the

focus is on working with larger pharmaceutical

companies in reciprocal arrangements, a trend

that is expected to continue. “I have a hard time

believing that an independent research-oriented

company can become a fully integrated business

model company without strategic alliances with

big pharma companies,” says Choulika, who

recently was appointed chairman of France

Biotech, the French association for life-science

entrepreneurs. “On the one hand, the research

and discovery focus must be concentrated into

biotechs; on the other hand, therapeutic devel-

opment has to be partnered with big pharma.” In

other words, biotechs in Europe tend to focus on

discovering novel drugs while letting experi-

enced pharma partners help ferry new drugs

through arduous and expensive clinical trials to

get them to market.

Galapagos’ Van de Stolpe agrees: “Pharma is

in urgent need of novelty and looks externally to

biotechs like Galapagos to fi ll their pipelines. So

there’s been a general increase in outsourcing of

early drug discovery in order to reduce fi xed

costs.” Van de Stolpe says his company has risk- GE

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S E C T O RS P O T L I G H T >>

NEXT BIOTECH

600

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SAJJMAMFJD

’08 ’09

NOS

“THERE HAS CERTAINLY BEEN MORE SUPPORT FOR R&D FROM THE FRENCH GOVERNMENT.”

WHAT GLOBAL RECESSION?NYSE Euronext’s Next Biotech index was up 27 percent from Sept. ’08 to Sept. ’09.

SOURCE: NYSE EURONE X T

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sharing alliances with several top pharma com-

panies, including MERCK & CO. INC. (MRK);

Janssen Pharma ceutica, a JOHNSON & JOHNSON

(JNJ) company; GLAXO SMITH KLINE PLC (GSK);

and ELI LILLY & CO. (LLY). It’s an approach taken

by many EU biotech companies, including

Transgene, whose strategy is to initially develop

its products in-house and then seek partner-

ships with big pharma companies for Phase III

trials and beyond.

FIGHTING DISEASES

It’s this sort of symbiotic relationship that is

helping to extend the range of treatments

from medicine aimed at orphan diseases —

which the EU defi nes as serious diseases that

aff ect fewer than fi ve in 10,000 people, such

as muscular dystrophy, cystic fi brosis and

glioma. It is doing likewise with respect to

treatment of more common ailments aff ect-

ing tens of millions of patients — for exam-

ple, infectious diseases, which are the second

leading cause of death worldwide (behind

cerebrovascular disease), taking one in fi ve

lives each year, according to World Health

Organization data. “Europe is positioned to

treat widespread ailments,” says Choulika.

Crucell’s Quinvaxem®, for example, com-

bines protection against five potentially

deadly childhood diseases — diphtheria, tet-

anus, whooping cough, hepatitis B and H.

infl uenzae type b — in a single dose, accord-

ing to CEO Ronald Brus (see box, right).

“While others focus on treating illness, Crucell

focuses on prevention,” says Brus. “In 2008

alone, Crucell’s vaccines prevented more than

3 million cases of infectious diseases and more

than 700,000 deaths.”

Cellectis, whose technology is designed to

do genetic editing to disable viruses, is also

looking at major diseases. “Our three most

promising products are for clipping the

genomic DNA of the herpes virus, HIV or

hepatitis B,” says Choulika. He points out that

such treatments don’t simply stop the spread

of a virus; they also destroy the virus within

cells. “Th is is the fi rst class of drugs that can

cure a cell of a viral infection,” says Choulika.

And the market is huge, he adds, with an esti-

mated 350 million people carrying a persis-

tent version of hepatitis B that cannot currently

be treated.

Another common illness biotech firms

have set their sights on is rheumatoid arthritis

(RA). Th e market for RA drugs this year is

expected to top $15 billion, according to Van

de Stolpe, who adds that Galapagos is focused

on a new potential blockbuster oral medica-

tion, GLPG0259, for RA that has demonstrated

safety in a Phase I trial (see box, right).

ON THE HORIZON

Executives and researchers say the cost of

gene sequencing to uncover new genetic

markers and mechanisms has dropped tre-

mendously in the past few years, further

encouraging new research. “Malaria, for

example, is one of the most prevalent infec-

tions in tropical and subtropical regions,”

Brus points out, “causing severe illness in

300 million to 500 million people a year and

death in 1 million to 3 million people a year.”

So far no licensed vaccine is available to fi ght

this disease, but Crucell is hopeful that a col-

laboration with the U.S.’s National Institute

of Allergy and Infectious Diseases on a malaria

vaccine will bear fruit in time. “Biotech is a

slow industry,” and the market has oft en

overanticipated the research, says Choulika.

But he believes that given enough support

and time to allow the technology and the

knowledge to develop, companies like his

can address many of today’s most challeng-

ing illnesses. Th e result won’t just be a “next

wave” of biotechnology, says Chou lika. “It

will be a tsunami.”

THE RESULT WON’T JUST BE A “NEXT WAVE” OF BIOTECH, SAYS CHOULIKA. “IT WILL BE A TSUNAMI.”

GE

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QUINVAXEM®, developed by

Netherlands-based Crucell, combines

antigens for five potentially deadly child-

hood diseases — diphtheria, tetanus,

whooping cough, hepatitis B and H.

influenzae type b — in a single liquid

dose. This August, Crucell secured $300

million in new contracts for the pediatric

vaccine, bringing the total to $800 mil-

lion since the launch of the drug in

2006. More than 100 million doses of

Quinvaxem, which may help reduce juve-

nile mortality rates in developing nations,

have already been distributed in more

than 50 countries since the World Health

Organization prequalified the vaccine.

MICROPLASMIN, which may help fore-

stall age-related blindness, is in its third

stage of clinical trials, with studies cur-

rently under way in Europe and the U.S.

Microplasmin is a recombinant enzyme

that helps detach the vitreous humor from

the retina — a feat once achieved only

with major eye surgery — to treat eye dis-

eases such as macular degeneration and

diabetic retinopathy. Belgium-based pro-

prietor ThromboGenics expects Phase III

results starting in 2010.

GLPG0259, a once-daily orally available

candidate drug for the treatment of rheu-

matoid arthritis (RA), successfully com-

pleted its first human trial this summer.

Researchers found the compound safe to

administer in multiple doses, with no car-

diovascular side effects. The drug works by

blocking a novel target believed to be

involved with inflammation and the break-

down of human cartilage, key symptoms

of RA. Galapagos, based in Belgium, is

developing GLPG0259 and plans to begin

Phase II efficacy trials next year.

BIOTECH BREAKTHROUGHSThree promising new drugs from

European biotech fi rms:

SOURCES: RESPECTIVE COMPANIES

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I N S I D EN Y S E E U R O N E X T

“Operating our own data centers is an

indication of the way we view our role as the

secure, stable operator of the world’s most liq-

uid, most scalable, most transparent and most

orderly markets,” adds Ken Barnes, vice presi-

dent of NYSE Technologies. “And it allows us

to have control over the entire technology

value chain and the end proposition for our

clients. Our goal is to make the complete life

cycle of a trade as cutting edge as possible.”

Th e new data centers, which are expected

to be fully operational in 2010, are planned

to support several billion daily transactions

and quotes. NYSE Euronext plans to use 20

percent of the compute space for its own sys-

tems and to commercialize up to 80 percent

for market participants.

The new buildings will also consolidate

the Exchange’s data centers. NYSE Euronext’s

U.S. data center in Mahwah, N.J., will pro-

vide access to the NYSE Classic, NYSE Arca,

NYSE Amex, NYSE Arca Options and NYSE

Amex Options markets all under one roof.

It offers 100,000 square feet of compute

space in a 398,000-square-foot building on

a 28-acre site 34 miles from Wall Street.

NYSE Euronext’s European data center in

Basildon, England, will provide access to

the NYSE Euronext cash equities market, as

well as to NYSE LIFFE, NYSE Arca Europe

and Smartpool. It will also provide 70,000

square feet of compute space in a 315,000-square-

foot building on a 16-acre site 33 miles from

central London.

Th e $500 million investment in the two

data centers includes a commitment to energy

effi ciency and sustainability. NYSE Euronext

instituted a number of green initiatives in con-

structing the centers that would also ensure that

the facilities are attractive to potential custom-

ers. “A lot of thought went into the greenness of

the centers,” says Young. “For example, the

Basildon center is purchasing only green power,

buying electricity strictly from renewable

sources.” (Visit nysemagazine.com/inside for

more on the facilities’ green designs, including

generators powered by low-sulfur fuels to reduce

sulfur oxides and chilling systems that optimize

free cooling air from outside whenever possible.)

IN PURSUIT OF ZERO LATENCY

Connecting the data centers to the outside

world will be an ultralow-latency trading and

market-data network. Its industry-leading speed

and capacity will facilitate the processing of

communications across the trade life cycle —

from quotes, signals and indications of interest

to trades, affi rmations and advertisements. In

fact, the new facilities will use the 10-gigabit

Ethernet network technology recently pio-

neered in the deployment of its current data

centers to support an internal latency of less

than 40 microseconds each way. “We view the

networks we deploy in and around our data

centers as a diff erentiator — the applications

they off er are unique, and the performance

refl ects the investments we’ve made in cutting-

edge switching platforms,” says Young.

Providing the underpinning fiber-optic

connections is ABOVENET INC. (ABVT), a lead-

ing provider of high-bandwidth connectivity

solutions. “We have worked collaboratively with

the NYSE to design the platform that allows

this vital fi nancial exchange to off er leading-

THE FUTURE OF TRADINGNew state-of-the-art data centers in greater New York and London are expected to drive market innovation at breakneck speeds.

B Y J E A N N E C O T R O N E O D A R R O W

V E R Y B O D Y K N O W S T H E FA C A D E O F T H E N Y S E B U I L D I N G at the corner of Wall

and Broad streets. But two new structures are about to become equally important to

the future of NYSE EURONEXT (NYX). Twin data centers now being built in the greater New

York and London metropolitan areas will offer customers the industry’s premier one-stop

access to liquidity with the highest levels of resilience and the lowest available latency (the time

gap between trade placement and execution) to NYSE Euronext markets. These data centers will

be next-generation trading environments where infrastructure, software and markets all meet

using the fastest and most reliable technology available. “To run world-class markets you need

world-class technology,” says Stanley Young, CEO of NYSE Technologies and co-global CIO of

NYSE Euronext. “In the electronic world of trading, bringing buyers and sellers together in an

ultralow-latency environment is crucial to our future as a market.”

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T H E G L O B A L M A R K E T P L A C E U P C L O S E>>

“WE VIEW THE NETWORKS WE DEPLOY IN AND AROUND OUR DATA CENTERS AS A DIFFERENTIATOR.”

— STANLEY YOUNG, CEO OF NYSE TECHNOLOGIES

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edge capability to all of its constituents,” says

William LaPerch, AboveNet’s president and

CEO. “We are proud to be part of this eff ort.”

Other vendors helping NYSE Euronext build

its next-generation trading platforms and con-

solidate its global data centers are Juniper

Networks Inc. and Ciena Corp.

STIMULATE AND INNOVATE

One of the most promising features of the new

data centers is the potential they offer for

industry innovation. “We believe that one-

stop access to our market engines — equities,

options, ETFs — and the near elimination of

the latency and unpredictability of executing

across multiple engines will stimulate the

trading community not only to trade more

but to innovate when it comes to multi-asset-

class, multi-leg strategies,” says Young.

Th is applies to global trading as well. When

the centers are up and running, “fi rms execut-

ing business in North America will execute

business in Europe the same way,” he explains.

“Th ere may be diff erent order types and mar-

ket practices, but the technology and the

experience will be exactly the same. It’s part

of the globalization of our business.”

Ultimately, those standing to benefi t from

the facilities are issuers and investors. Says

Young: “Th e technology revolution in the

way we think about running our global mar-

kets is a great thing for listed companies —

and their investors. Investors’ ability to trade

fairly and openly, easily and simply where

there are deep, liquid, effi cient markets with

great price discovery contributes to a vibrant

capital market.”

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CONNECTING THE DATA CENTERS TO THE OUTSIDE WORLD WILL BE AN ULTRALOW-LATENCY TRADING AND MARKET-DATA NETWORK.

MEANWHILE, BACK AT THE NYSE…

This article includes information that may constitute

“forward-looking statements,” as it is based on current

expectations and assumptions that are subject to risks

and uncertainties. Please refer to the complete text of

the Cautionary Note on page 3 for further information on

factors that could cause actual results to differ materially

from forward-looking statements.

The significant investment in the New York

and London data centers has not prevented

NYSE Euronext from investing in its existing

facilities. In fact, it recently launched a major

renovation of the NYSE trading floor.

During the next 18 months, mainly on week-

ends and after hours to avoid any business dis-

ruption, the aging, tightly quartered broker booths

and workstations housed within the Exchange’s

trading floor will be eliminated and replaced with

large, modern trading desks offering state-of-

the-art technology. The goal, explains Bob Airo,

senior vice president, NYSE market operations, is

to attract brokers with existing floor operations to

move some or all of their upstairs trading opera-

tions to the NYSE trading floor. More business

conducted on the NYSE floor should translate

into more volume for the Exchange, he says, and

firms should be able to lower costs and gain effi-

ciencies by consolidating their trading activities

and getting closer to the point of sale.

In addition to 15 new trading areas that

will accommodate up to 40 traders each, plans

include renovations to update and open up

designated market maker trading posts, network

upgrades, new wallboards and screens, and a

broadcast center for a major news organization.

Neil Catania, CEO of independent brokerage

MND Partners, has been representing customer

orders on the NYSE trading floor for 27 years. He

says his firm considered opening an upstairs desk

but chose to work with the Exchange instead.

“We looked at real estate recently, but this is the

best alternative,” he says. Given the increased

demands for speed and low latency, “being at the

point of sale really works for us.”

To read about the many “green” elements of the new

data centers, visit nysemagazine.com/inside.

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F O RS T A K E H O L D E R S

ot too long ago, I came across a

distressing statistic reported by

the Or gan ization for Economic

Co-operation and Development:

Th e U.S. ranks 10th in the world in percentage

of adults between the ages of 25 and 34 who

hold a postsecondary-education credential.

Higher education is essential to our country’s

economic recovery and long-term growth. It is

a catalyst for industrial innovation, and it

strengthens the ability of American workers to

compete globally.

We need a system that is robust and nimble.

Without further burdening strained public

budgets, we must develop additional educa-

tional access. Private investment capital is an

important source of funding that, together with

public and philanthropic sources, will help pay

for our growing education and workforce needs.

Market-funded schools, like those in the

DeVry family, respond to this need for

increased access with education innovations

such as online learning and class schedules

that accommodate those who must work

while attending college. We serve students

who have been historically underrepresented

at traditional colleges and universities: work-

ing adults, minority and immigrant families,

and those who are the fi rst generation of their

family to attend college.

Market-funded institutions today help to

educate 2.25 million students, or 9 percent of

total U.S. postsecondary enrollment, expand-

ing educational access, opportunity and

career success. For example, the U.S. has an

acute shortage of nursing-school capacity.

Our Chamberlain College of Nursing has

added four new campuses in the past three

years. We have increased the number with-

out a public bond issue, a fund-raising cam-

paign or higher taxes, because our growth is

funded through private investment. Likewise,

our Ross University School of Medicine helps

close the gap between the 26,000 hospital

residency positions that open up each year

and the 16,500 physicians graduating annu-

ally from U.S.-based medical schools. In fact,

Ross provides the U.S. residency system with

more physicians than any other medical school

in the world.

Proprietary institutions such as those oper-

ated by DeVry are goal-oriented: Only by pre-

paring graduates to meet the growing shortage

of skilled health-care and technology workers

are we able to stay in business. Our results

speak for themselves: Since 1975, 90 percent of

DeVry University graduates systemwide in the

active job market were employed in their fi eld

within six months of graduation.

We have also been innovators in public-

private education partnerships like the DeVry

University Advantage Academy, where high

school students earn both a high school diploma

and an associate degree at no extra cost. Th is

program has been extremely successful in help-

ing urban students obtain a college degree: Th e

Chicago Advantage Academy graduation rate is

89 percent, compared with 54 percent for the

Chicago public schools. In Columbus, Ohio, the

program has a 100 percent graduation rate.

Th e success of our graduates is also achieved

through educational partnerships with corpo-

rations. Earlier this year, for example, we began

partnering with IBM CORP. (IBM) on a new

Enterprise Computing track within the DeVry

University Computer Information Systems

bachelor’s degree program. The new track

provides students with critical computing skills

designed to meet the increased demands of

IBM clients and business partners.

Market-funded higher education is respon-

sive to the workforce and to the innovation

requirements of business. It is a vital compo-

nent of a system of higher education that serves

the nation’s long-term economic interests.

V I E W S F R O M D A N I E L H A M B U R G E R , P R E S I D E N T A N D C E O , D E V R Y I N C. ( D V )

INVESTING IN EDUCATION

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“MARKET-FUNDED SCHOOLS SERVE STUDENTS WHO HAVE BEEN UNDERREPRESENTED AT TRADITIONAL COLLEGES AND UNIVERSITIES.”

DeVry Inc., a new member of the S&P 500, is a

global provider of education services. It is the

parent organization of DeVry University and

seven other secondary, postsecondary and pro-

fessional education institutions.

>>

Private capital is key to expanding access to higher education in America.

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