McCEO: Jim Skinner, the man at the pinnacle of the Golden Arches, has developed a leadership and performance recipe that's simple and powerful--and an example for others.

Author:Donlon, J.P.
Position:CEO OF THE YEAR - Interview - Company overview

The recession has been the graveyard of many CEO reputations. So it may come as a welcome surprise that some leaders have not only survived but boosted their company's performance the old-fashioned way--they earned it--through sticking to steady if unglamorous organic growth. Last February, a committee of his peers met at the NYSE and chose Jim Skinner, 64, CEO of McDonald's, to be the 2009 Chief Executive of the Year (see sidebar, p. 53) for transforming an iconic brand by rebuilding its purpose, strengthening its internal talent and realigning that talent with a return to the company's fundamental principles. In doing this, Skinner and his senior team had to rethink much of what had been proven successful since the days when founder Ray Kroc and his ideas suffused the organization.

In November 2004, Skinner, who began his career with McDonald's in 1971 as a trainee in Carpentersville, IL, became CEO at a critical time. Former CEO Jim Cantalupo had died of a heart attack earlier that year. His successor, Charlie Bell, was diagnosed with colon cancer and stepped down shortly after due to failing health. As he relates in the following interview with CE editor-in-chief J.P. Donlon, Skinner felt his first order of business was to restore confidence and rethink direction. He had worked with Cantalupo and Bell to create a "Plan to Win" strategy, which called for jettisoning noncore businesses that proved a distraction for the company and concentrating on existing restaurants and franchisees. "We took our eyes off the fries," Skinner drolly observes. Rather than growing as it had for 48 years by building new restaurants, the company focused on operating existing restaurants better. In addition, the company rethought its menu offerings, introducing more fruits, vegetables and chicken items into its traditional mix and delivering more nutrition information to help guide customers accordingly. Stung by criticism that McDonald's and other fast-food groups contributed to growing obesity in America--the 2001 best seller Fast Food Nation and the 2004 documentary Super Size Me had tarnished die industry's image--the company, under Skinner's direction, also promoted physical activity programs for kids and adults and sponsored local youth sports teams.

As a result, McDonald's has been revitalized. The company was one of only two DJIA stocks that ended 2008 with a gain. (The other was Wal-Mart.) Last year it outperformed other restaurant competitors such as Burger King Holdings, Wendy's International and Yum Brands, which operates Pizza Hut, Taco Bell and KFC. Since Skinner took the CEO job, McDonald's total sales have increased from $50.1 billion in 2004 to $70.1 billion in 2008, up 41.1 percent. Net income increased by 81.3 percent, from $2.3 billion to $4.3 billion. Yet the total number of restaurants systemwide grew by a modest 4.8 percent, from 30,496 in 2004 to about 31,967 by year-end 2008. Average sales per restaurant jumped from $1.6 million to $2.2 million during this period, producing more cash flow for existing franchisees and more volume for suppliers. At a time when many companies are over-leveraged to engineer growth, the Oak Brook, IL, firm maintains a strong credit rating.

Jim Skinner is the antithesis of the imperial CEO. No Davos World Economic Forum appearances for him. "At McDonald's, we cook burgers--not books," Skinner told an industry group. Born in Davenport, IA, he left home to join the Navy at 16 and served as a radar operator on the carriers USS Oriskany and USS Midway. (He served two tours in the Gulf of Tonkin,) Both his bricklayer father and chief petty officer Ernest L. Wagner, with whom he served on the Oriskany, were strong influences on his life. "Jim helped us create a common understanding of what we could accomplish," says Gloria Santona, the company's general counsel. "He's pretty much a hands-off boss who doesn't look over your shoulder," says McDonald's CFO Pete Bensen, "but he has high expectations." Rick Floersch, who defected from Kraft five years ago to become McDonald's chief human resources officer, points to Skinner's advancement of leadership development programs arid his priority of "putting people in the right place" as contributing factors to the high scores in the company's employee commitment surveys. "Jim is extremely empowering," he adds. "You always know where you stand with Jim, personally and professionally," adds COO Ralph Alvarez, who is widely believed to be first in line to succeed Skinner. Others in food retailing have taken note of the McJuggernaut. "There's a lot to admire about McDonald's," says Tom Greco, CEO of the bakery cafe chain Bruegger's Bagels. "From site selection to operations, they are very disciplined, but not at all bureaucratic."

Skinner's Performance as CEO Systemwide Same Store Combined Net Income Cash Provided Sales Sales Operating Growth (a) by Operations Growth Growth Margin (a) ($=M) 2004 11.5% 6.9% 21.3% 38.0% 3,904 2005 5.6% 3.9% 20.7 4.6 4,337 2006 7.3% 5.7% 21.9% 40.6% 4,341 2007 11.9% 6.8% 24.4% 9.9% 4,876 2008 11.2% 6.9% 27.4% 7.9% 5,917 5-Year 9.5% 6.0% 23.3% 19.2% (b) 4,675 Average McDonald's S&P 500 Dividend Total Return to Market Cap Stock Price Index Yield Shareholders ($=B) Appreciation 2004 29.1% 9.0%...

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