A New G-P Emerges (exclusive audio and web content)

Tim Darnell

March 1, 2008

Exclusive audio - Hear Jim Hannan describe his whirlwind move to Atlanta

Exclusive audio - Who are his mentors?

Exclusive audio - What's on his reading table?

Exclusive audio - What advice does he offer executives today?

Web exclusive - G-P & the ATL

Web exclusive - More comments about Jim Hannan from Atlanta leaders

Here's the difference between being a public company and a private one. In November 2000, Georgia-Pacific Co. – public, at the time – purchased Fort James Corp., making G-P the world's largest manufacturer of paper and tissue products. The deal met every Wall Street expectation for a public company: create quarterly returns that can service the cost of capital, pay down debt, make whatever necessary capital improvements are needed to keep the business going ... all short-term focuses.  

But the acquisition incurred more debt onto a company that already had made some other expensive deals. And right around the time as the Fort James purchase, many public companies were targeted with product liability suits from plaintiffs who blamed lung and other diseases on asbestos-containing products. In the '60s and '70s, a G-P company manufactured a joint compound product containing asbestos. That's why, all of a sudden, G-P was hit with several product liability claims.

Then came 2001 ... and a recession.

Today, as you may well know, G-P is a private company. And it probably wouldn't make such an acquisition again.

But shelling out a cool $170 million for a cup company is exactly the kind of deal G-P would make today. In fact, on June 29, 2006, it did, buying Insulair Inc., which manufactures insulated paper cups and lids. Now, Insulair boasts its technology eliminates the need for polystyrene foam cups, cup sleeves or double cupping.

Try getting Wall Street analysts all hopped up about that.

G-P, however, – and its then-executive VP, Jim Hannan – saw something unique about Insulair's technology. For example, Insulair recently introduced its EcoSmart Cup™, the world's first insulated cup to use 99 recycled paper. Since then, G-P has folded the Insulair business and its California facility into its Dixie® business.

And innovation such as this – long-term innovation – is exactly what G-P is looking for these days when it comes to growing the company.

The difference between the two deals is only one illustration of the vast shift in company focus and culture that has swept through G-P since its purchase by Wichita, Kan.-based Koch (pronounced Coke, which can lead to a ton of confusion) Industries three years ago. And Hannan, named G-P's CEO and president this past August, has been entrusted to lead the highest-profile subsidiary of one of the nation's largest private companies. "When you look at the Fort James deal, the debt on the table, and the subsequent run in asbestos liability, G-P was in a pretty tough position," Hannan, who turns 42 next month, says. "I'm not sure I could have done any better as a public company. Some of that was driven by the very nature of being public.

"But the biggest single difference about being private is that it changes our vision to be more focused on what we're good at. It also changes the focus on markets, and where analysts think there is the greatest value. If consumers products trade at 10 to 12 times multiple, and building products trade at six to seven times multiple, then shareholders and analysts say you should take money out of building products and reinvest it in consumer products. Being private, however, allows us to look at where the best opportunities are located and invest in all of them.

"That's a big cultural shift, and it has changed the behavior of the organization."

A psyche in crisis
Koch Industries purchased G-P shortly before Christmas 2005 at a $21 billion price tag. The deal went through during a time in which Atlanta's image as a corporate headquarters was reeling. Delta Air Lines was in the midst of bankruptcy; banks (at least those that weren't being bought) were evacuating for more friendly environs; Colorado's Liberty Media still was sweating the tax write-off details to buy America's Team; and BellSouth was about to be gobbled up by AT&T. The last thing the city's psyche needed was the specter of another long-time Atlanta icon losing its local identity.

Hannan, then president of another Koch subsidiary, INVISTA Intermediates, was on a Chinese business trip when he heard the news his employer was buying G-P. "I had just come back from dinner, and got a call on my cell phone at 11 or 11:30 at night, from Joe Moeller and Charles Koch (president and COO, and chairman and CEO, respectively, of Koch), saying they'd like for me to come to Atlanta and be Joe's right-hand guy. That was pretty much the extent of my job description."

Actually, his title became executive VP and chief administrative officer. G-P icon A.D. "Pete" Correll stepped aside to become chairman of G-P's board, while Moeller, a 40-year-plus Koch veteran, became president and CEO.

In 2006, Hannan was promoted to G-P's president and COO. Then, this past November, Moeller returned to Koch as vice chairman and a member of its board of directors, and Hannan – a Northeasterner who looks more like an athlete than a finance guy climbing the corporate ladder – was named CEO and president. "We picked Jim as a guy who has a lot of talent and as someone we needed to be part of our team," says Moeller, now semi-retired and living in Houston.  "Did I think Jim had the talent to run G-P over the long term? There was no doubt in my mind, but those kinds of decisions aren't made on day one. But over the following two years, it became very obvious Jim was the right guy to step into that role.

"Sure, he's young, but if you look back over Koch's history, it's not unusual for us to give responsibility at a young age. But people earn it and then they have to perform."

Calming the waters
Today, Hannan acknowledges the tremendous sense of anxiety that followed Koch's acquisition of G-P. "I've been involved in about a dozen acquisitions, but this was the biggest," he says. "Internally, people hear things, and wonder if the company will do what it says it will. When people heard what Koch is about; that we weren't going to move the company; that we were going to invest and grow; they said, we'll see. And I would have said the same thing. People were uneasy."

That unease grew over the first six to nine months of Koch's stewardship, as several high-ranking G-P leaders left for other opportunities inside and outside the new parent company In Hannan's estimation, only about 17 Koch personnel were brought to Atlanta in those beginning stages, both in operations and management (that number today is roughly 35, and about a half dozen former G-P execs have moved into other Koch companies).

"Between the first three and nine months, that was probably the low point in terms of comfort level and morale," he says. "And then after nine months, people started to see investments. People started seeing our leaders say, ‘This is what's going to happen,' and it happened. We made our first acquisitions; we started asking questions about innovations, driving ideas, relationships with universities ... People started getting excited.

"Now, I'm not going to say everyone is on the same page, but the organization feels good about where it's headed. And this track record of saying, ‘We're going to do something,' and then it happens, is the only way to make people comfortable. What you see is a private company with a different philosophy about investment and innovation, and empowering an organization to improve and accelerate."

Hannan also had to convince local civic leaders that G-P wasn't going to vacate one of Downtown's premium plots of land for the wheat fields of Wichita, or that a Koch logo would replace the G-P icon on their salmon-tinted skyscraping headquarters.

"G-P has been involved in Atlanta for a long time, and that's not going to change," Hannan says. "I'm involved on the Mayor's Committee for Progress; I'm on the board of the Commerce Club, the Atlanta Historical Society ... I go to regular chamber events, school events for my kids, and events around town. But the best thing we can do for Atlanta is keep this company vibrant. "I'm not going to tell you Joe or I could ever follow Pete. He was a great steward for G-P. That's not to say we won't do the right thing, but I don't think I'm ever going to be Pete. And that's OK."

"He's willing to get involved in community activities, and neither Jim or G-P have refused to do anything that I've asked of them," says Tom Bell, chairman and CEO of Cousins Properties. As a former G-P board member, Bell met Hannan as the transaction was going through. "I felt good about the sale; it's all about the shareholders, and the price that Koch was willing to play was a windfall." (Koch acquired G-P's common stock through a cash tender offer.)

Marketplace rumors
G-P competitors also were quick to jump on the company's purchase as a sign of weakness. "Our competitors were using [the sale] as an opportunity to tell their customers, ‘Look, they've taken on all this debt, they're going to break up the company and sell this and get rid of that,'" Moeller says. "There was a lot of speculation in the marketplace, but I hope we've proven to our employees and customers we're serious about using G-P as a platform for growth."

Koch's first experience with a G-P company came in 2004, when it purchased two cellulose pulp mills from G-P in New Augusta, Miss., and Brunswick, Ga.  "That was an experiment to see whether or not our capacity in operations could be applied to a G-P company," Hannan says. "What we found out is that they could. What we're asking now are long-term questions. Is this asset long term, how does it benchmark against its best competitors in the world, and if there is a gap, is it profitable to close that gap with investment? If it is, then we make that investment.

"To be competitive, sometimes it means a reduction in headcount in favor of technology, but that also means those people with jobs will have them long-term because that mill will be competitive."

The new, private G-P is holding any new product lines or innovations close to its vest. All Hannan will say is that "you'll see some significant upgrades to some of our product lines." Already the company has installed two tissue paper machines using through-air-dried technology, designed to increase the company's production of premium products (think Brawny® paper towels and Quilted Northern® bath tissue) by 180,000 tons per year. This is the first major investment in those G-P products in four or five years, Hannan says.

While G-P isn't releasing how much money it is investing in new technologies such as these, Hannan stresses that more are on G-P's privately held long-term horizon.

"When we think about vision and value, we think about speed and change," he says. "Doesn't matter what business it is, but all of our competitors are getting better all the time. We have to improve faster; we have to invest in innovation and capability, and make sure we're leaders, not followers. There's a heightened awareness of innovation, and we've set up a greater expectation for it, not just in product development, but in cases like, ‘Can we do IT differently? Can we do accounting differently? Can we change how we communicate with our employees?'

"Going from being asset focused to capability focused, and then thinking about improving faster than your competitors ... That's a fairly significant shift for G-P as well."

Photography by Lance Davies