CEO Kilts drives up value of company and himself

James M. Kilts made history four years ago as the first outsider to lead Gillette Co., but ultimately he'll be remembered as the man who sold the century-old Boston company to Procter & Gamble Co. of Cincinnati.

In those four years, however, Kilts reshaped and reenergized the slumbering consumer products giant, streamlining operations, expanding products, improving its brands, and restoring Gillette's reputation as an innovator and industry leader. He reversed losses, gained market share, and sent the company's stock price soaring.

In doing so, he confirmed his own reputation as one of the corporate world's top turnaround specialists, following up the revival of Nabisco Holdings Corp. that he engineered a few years earlier -- a revival that also ended with the sale of the company. Gillette shares closed at $51.60 yesterday, up 50 percent from when Kilts was named chairman and chief executive in January 2001.

"First and foremost, he stopped the bleeding, and stabilized the company, and turned it around to demonstrate that Gillette had ability to be a strong consumer products company again," said Patrick Schumann, analyst at Edward Jones Investments in St. Louis.

The company's renewed strength ultimately led P&G to pay an 18 percent premium to acquire Gillette's stock. And in doing well by shareholders, Kilts also is doing well for himself.

Kilts, who will stay at the combined company as vice chairman for a year, will get at least $30 million in cash and stock, plus a pension of as much as $2 million a year should he leave after a takeover, according to Bloomberg News, which analyzed Kilts's contract, filed last year with the Securities and Exchange Commission.

In 2003, the most recent year available from SEC filings, Kilts's salary rose 22 percent to $1.2 million, and his bonus jumped 59 percent to $2.7 million. He also received $12.9 million in stock-based compensation.

Kilts, through a Gillette spokesman, declined to be interviewed. The spokesman, Eric Kraus, would not comment on Kilts's compensation.

To analysts and investors, however, Kilts appeared well worth the money. Last year, when the press reported that Kilts might leave Gillette to take over Coca-Cola Co., Gillette's stock shed $1.5 billion of value. Coke added $2.5 billion in value to its stock.

While revered in the corporate world, Kilts kept a low profile in Boston. He kept his home in Rye, N.Y., and spent his weekends there. Boston business leaders said he was not particularly involved in civic affairs.

Still, as Gillette bought the naming rights for the professional football stadium in Foxborough, Kilts became a Patriots fan, attending many games, said Rosabeth Moss Kanter, a Harvard Business School professor and friend.

Kilts, 56, built his reputation over more than 30 years in consumer products, working with familiar brands such as Kool-Aid powdered children's drink and Oscar Mayer cold cuts, and coming up with new products.

He introduced Country Time Lemonade to expand Kool-Aid's sugary children's franchise to adults, and Lunchables, the takeout prepackaged lunch boxes of cheese, crackers, cold cuts, snacks, and drinks that became popular with children.

Kilts also established his credentials as a manager. Before engineering Nabisco's turnaround, he effectively merged tobacco giant Philip Morris's two food divisions, General Foods and Kraft Foods. Toby Stuart, a professor at Columbia Business School who coauthored a case study of this merger, said Kilts showed "excellent leadership skills" then and later.

The Gillette that Kilts took over in early 2001 was losing market share, its innovative edge, and the confidence of investors. Kanter, the Harvard Business School professor, said Gillette was trapped in a cycle in which its executives made unrealistic sales projections, and then discounted products to entice retailers to take more than they needed to try meet projections and satisfy Wall Street.

The result: Revenue was lost, projections were missed, and Wall Street punished the company's stock.

To end this cycle, Kilts became one of the first chief executives to abandon the common practice of issuing projections in advance of quarterly financial reports, said Kanter, who used Gillette's turnaround as a case study in her recent book, "Confidence."

Within the first 18 months on the job, Kilts slashed some 3,700 jobs worldwide, closed six plants, and reduced debt by $1 billion. He used the savings to develop new products and expand advertising.

Kanter said he unraveled a "clubby atmosphere" and replaced it with a meritocracy, holding executives accountable for their projections and performance. One of his most quoted phrases at Gillette became, "A promise made is a promise kept."

"He came from a consumer marketing background and made sure the consumer had the right products," said Kanter. "They were innovative and high quality, so Gillette could charge higher prices and retailers wanted their products."

Ironically, when Kilts first took over Gillette, he assured shareholders and employees that he was not there to sell the company but to turn it around and build it. Kraus, the Gillette spokesman, said Kilts indeed accomplished his goal, which in turn provided the opportunity for the merger of two top consumer products companies.

Robert Gavin can be reached at rgavin@globe.com.