RockTenn CEO Jim Rubright led his Norcross-based packaging manufacturer on to an elite group of companies earlier this year when it was named to the Fortune 500 list for the first time. As CEO for the past 13 years, Rubright, 65, did not use the much-touted method of “organic growth” to jump from No. 669 in revenue to No. 449. Instead, the University of Virgina-educated lawyer has primarily engineered large acquisitions — buying two Gulf States Paper divisions, Southern Container and Smurfit-Stone Container — to grow RockTenn from $1.3 billion in 1999 to an estimated $9.5 billion this year, with 26,000 employees.
Acquiring other companies and melding them into your own is a risky game that has derailed many firms. Rubright, a former King & Spalding attorney who has handled such deals, knows that firsthand. He talks about how to avoid major pitfalls, as well as how he hires key people and the best way to advance your career.
Q: What’s your acquisition strategy?
A: We did three transformative acquisitions. All three involved a purchase price that was significantly greater than our equity market capitalization at the time.
The reasons our acquisitions have been successful is that each one had a compelling strategic rationale. If not, you have a great chance of making a mistake and destroying value. It’s always been interesting to me because I get described as a conservative leader because our acquisitions have been conservatively financed and priced. But by nature, I’m highly risk tolerant.
One of the benefits in my life is that I didn’t get to be CEO of RockTenn until I was in my 50s. As a transactions lawyer for 20 years at King & Spalding and in the other jobs I’ve had, I’ve made enough mistakes that I understand just how high a degree of conviction you have to have if you’re going to do an acquisition to advance the company.
Q: How did you use acquisitions to advance your company?
A: If you’re a CEO, it’s really important to have a long runway in front of you if you’re going to try to transform a company. I knew from the board of directors that I didn’t have a clock ticking. Our strategy was to become the lowest cost producer of the things we produce. During our first two acquisitions, we increased our debt significantly. But in both cases, we felt we paid a relatively low purchase price for businesses that we felt were mispriced.
I’m always looking for discontinuities in environments that I think I understand. For example, I look at the fundamentals of a business that may be changing in ways that suggest that it may be a much better business than people have historically thought — essentially capitalizing on opportunities other people disregarded.
In the last acquisition, we bought a company coming out of bankruptcy. That is often a really good way to make money because a lot of debt is gotten rid of.
Our acquisitions were not primarily driven by the ability to create “synergies” that would reduce duplicative costs.
It was driven by spotting an opportunity and a mispricing that the market didn’t see — something you think you understand that the rest of the world doesn’t understand.
Q: How do you prevent the different cultures of the merged companies from derailing the benefits of an acquisition, which repeatedly happens in business?
A: We have a very strong culture, which is driven by respect, empowerment of employees and a commitment to satisfy our customers. You have to have that mindset to work here.
In one of our acquisitions, we lost all of the leadership of the other company. But you have to understand where the value creation in an acquisition comes from. In this case, it was a combination of the assets (plants and employees) and the customers.
So if we could keep the customers, the acquisition would be successful. Even though we lost all the management, it was the salespeople we had to retain because they had great relations with the customers.
So we went to them and said, “Tell us what we can do that will enable you to strengthen your relationship with the customers.” They told us and we did it.
In the last acquisition, there was situation where you had a culture clash. It’s a major challenge. In that situation, we took leaders from both companies and put them in various positions. But after a year, it didn’t work. We’ve essentially replaced all of the other company’s leaders with RockTenn leaders. We had to drive the cultural change that was necessary.
Q: What has helped you the most in advancing your career?
A: People helped me be successful. After being a lawyer at King & Spalding for a long time, I just wanted to be a CEO. I wanted to have the chance to have my own report card. I’m driven by report cards and that is the ultimate report card, to be a CEO of a public company. One of the partners at King & Spalding who I had worked for had left. A headhunter happened to call him and describe a CEO job that was open. That guy said they should hire me and ultimately they did. He opened the door for me.
Whatever job you take, find someone you really want to work for. You want to work for someone who you think is great. Those people are going to mentor you and you’re going to learn from them. They are going to create the opportunities you have in life.
If you think you are working for someone who you don’t think is great at what they do, who you don’t think cares about you, then move. Get a new job.
Q: How do you hire for key positions?
A: I don’t believe I can look at somebody and talk to them and determine whether they’re going to be successful or not. So an interview is almost insignificant to me. I use interviews to recruit someone I know I want to hire.
I want to look at someone who has a track record of demonstrated success.
I’m looking for someone who has a track record for making money. The money-making gene does exist, and you want to look for it.
Knowledge of the business is irrelevant. I didn’t know anything about our business when I joined RockTenn. You can learn a business. I want someone who’s going to knock themselves out to be successful.
You need to be analytical and driven. You don’t need to be incredibly bright because hard work and diligence can make up for a lot.
One other thing. I want to hire someone who a person I know and trust tells me, “hire her.” That’s the best way. Our people are our best recruiters.
Each week, Sunday Business Editor Henry Unger has a candid conversation, called “5 Questions for the Boss,” with a top executive in Georgia. Some remarks are edited for length and style.