'Invest in cuts that yield quick savings, such as head-count reduction and real estate.'
Christopher J. Coughlin may not have worked in the marketing services industry, but he will bring to his new role as chief operating officer at Interpublic Group a track record that is very relevant to the holding company these days: The former CFO of Pharmacia has proved highly effective in guiding companies through major change.
"We think he'll bring a very pragmatic approach to streamlining our business in a way that won't disrupt how we do our clients' work," said IPG CEO David Bell. "He's very strong in systems and processes."
On June 16, Coughlin, 50, will join a company that not only continues to face severe problems but also is considered "clearly a work in progress," as Bell put it last week. Key to the turnaround challenge is Coughlin's mandate to instill a new standard of financial reliability and accountability. "I'll be getting to know various operating units and their managements, and will produce a turnaround plan for David [Bell]," Coughlin said of his initial plans.
Coughlin's CFO background has led to speculation about the fate of Sean Orr, IPG's CFO, who will report to Coughlin. Last week Bell said Orr remains in his role.
As with any new CFO, Coughlin said he will review the efficiencies and effectiveness of the financial operations, but he added, "I'll make assessments about the organizational structure and teams without any preconceived notions about who needs to be where."
More urgently, Coughlin will help accelerate the company's efforts to cut costs. Triggered by IPG's Thursday release of a first-quarter loss, Moody's Investors Service put IPG on notice Friday afternoon that its debt rating may be cut to junk status because of concerns over a drop in organic revenue and rising operating expenses. Moody's said it will evaluate new management's efforts to cut costs, increase revenue and market share, and achieve "meaningful" reduction in debt.
Bell said his mandate to Coughlin is, "First to invest in cuts that yield quick and certain savings, such as head-count reduction and real estate. Second, to design a program that is substantially balanced out by the gain we expect to realize on the sale of [market-research firm] NFO." IPG's bank covenants allow it to take up to $200 million in restructuring costs.
Bell is also enacting initiatives to build organic revenue growth. Last week he named Kevin Allen, director of corporate development at McCann, as IPG's chief growth officer, charged with increasing demand for integrated marketing services among existing clients.
Sources described Coughlin as warm and friendly—in Bell's words, an "unaffected, genuine, regular guy." Bell said Coughlin's collaborative style should help break the ice with managers of IPG operating units. But he is also known as a tough, big-time CFO who can be dispassionate in meeting his objectives.
After Pharmacia acquired Monsanto and its GD Searle division, Coughlin worked with former Pharmacia CEO Fred Hassan "to [do] a lot of hefty cost cutting," said John Boris, a pharmaceuticals analyst at Merrill Lynch. "No question you need a very solid financial person in a turnaround, and he was that at Pharmacia."
"I have broad-based managerial experience, and I've been in situations where I've dealt with large mergers, divestitures and acquisitions," Coughlin said. "I've integrated businesses, manufacturing processes, different business cultures. I've been in charge of getting the most out of people with different backgrounds."
Coughlin had served as a CFO at three publicly held multinationals by the time he was 45. At pharmaceutical and household-products company Sterling Winthrop, which he joined in 1981, Coughlin helped lead a global reorganization, the reengineering of information services and the divestiture of its pharmaceutical business. By 1993 he was CFO and a board member.
He has also shown operational strengths beyond what might be expected of a financial executive. Within months after joining Nabisco Holdings as CFO in 1996, Coughlin was promoted to Nabisco International, where he grew the Asian, European and Latin American consumer-products businesses through acquisitions and market-share increases. He was tapped by Pharmacia in late 1997.
An outside recruiter contacted Coughlin before IPG board member H. John Greeniaus, former chairman and CEO of Nabisco, knew the executive was in discussions. "I spoke to all the board members before taking the job, particularly John," said Coughlin. "John was very honest with me in his answers, so it was very reassuring he thought it was a good fit."
Word of Coughlin's arrival last week preceded an earnings report that Bell, in his ninth week on the job, called "disappointing and unacceptable." In a conference call with analysts, the CEO blamed "continuing operational and legacy issues" set in place by previous administrations. While analysts expected earnings per share of 7 cents, IPG reported a net loss of $8.6 million, or 2 cents a share. In first quarter 2002, IPG earned net income of $59.8 million, or 16 cents a share.
IPG stock closed Friday at $11.87, 4.2 percent above the day's opening. Volume was close to double the daily average at 7.3 million shares.