John T. Dillon
1938–



Former chairman and chief executive officer, International Paper Company

Nationality: American.

Born: September 7, 1938, in Schroon Lake, New York.

Education: University of Hartford, BA, 1965; Columbia University Graduate School of Business, MA, 1971.

Family: Married Mary Catherine (maiden name unknown); children: one.

Career: International Paper Company, 1965–1987, sales trainee, then head of Asian operations; 1987–1995, executive vice president of packaging; 1995–1996, president and COO; 1996–2003, chairman and CEO.

■ After a 38-year-career at International Paper Company (IP), the world's largest forest-products company, John T. Dillon retired on October 31, 2003, at the age of 65. Dillon would be remembered as a product of his times—a low-key executive who recognized the forces of consolidation and led two major mergers. Dillon was all business. While most CEOs routinely led a board outside company life, Dillon instead became head of an industry trade group and used that role to create a more favorable business climate for his firm and those of his peers.

Dillon helped build International Paper into an enormous multinational corporation with 2003 sales of $25.2 billion. IP produced plywood, paper, pulp, and packaging; the company also processed chemicals such as crude tall oil and crude sulfate turpentine, which were byproducts of the papermaking process. The subsidiary Arizona Chemical produced resins and inks. IP controlled about nine million acres of forest in the United States and 1.5 million in Brazil and also held interests in 810,000 acres in New Zealand. About 75 percent of the company's sales were registered in the United States. Unfortunately for Dillon, the tail end of his career was marked by soft demand for his company's products.

A COMPANY MAN MAKES HIS MARK

John Dillon joined International Paper in 1965. One of his earliest management roles—leading International Paper's operations in Asia—prepared him to ultimately make his mark on the global stage. In his words, as quoted by the Associated Press, "In the last 10 years developing nations such as Indonesia, Russia, and Brazil have become important markets. When I got my start in the business, IP had about 25 competitors in the U.S. Soon, there will be just four or five companies competing worldwide" (December 5, 2000).

While leading IP's Asian operations, Dillon also served as a director of Carter Holt Harvey, the New Zealand paper and forest products company of which 51 percent was owned by IP. Dillon soon rose through the ranks at International Paper, attaining a series of high-profile positions. He served as executive vice president of packaging, as which he oversaw the company's industrial and consumer packaging businesses as well as its corporate engineering and technology staffs. He was then appointed president and chief operating officer in 1995.

A FOCUS ON ACQUISITIONS

One of Dillon's most important contributions to IP was his directing of the accumulation of market share—along with massive debt—through two key mergers. As recorded by CNBC, Dillon framed both mergers, which proved economically controversial, in historical terms: "Consolidation in the paper and forest products industry—indeed, in many of the basic industries—has been going on forever. In fact, our company was formed by consolidation. And I expect it to continue" (January 7, 1999).

In 1999 Dillon purchased Union Camp Corporation for $5.86 billion, a deal that he said promised huge savings. He noted on CNN, "One of the leverage factors of the Union Camp merger is a huge amount of productivity that we'll be able to get out of the combination of two companies, in the simple sense, as a result of the overhead reduction" (October 29, 1999).

Dillon's next deal would be even bigger. In April 2000 International Paper paid $7.3 billion in cash and stock to acquire its rival Champion International, besting an offer from the Finnish paper company UPM-Kymmene. In announcing the acquisition, Dillon noted that the headquarters of the two firms were just a few miles apart and that the cultures were similar and would be easily integrated. He commented on CNBC, "Champion strengthens each one of our core businesses. It's accretive to earnings. It's above the cost of capital, on an acquisition basis, so it not only is financially attractive, but it also continues the march to improve our core businesses" (May 12, 2000). Dillon predicted the merger would yield annual cost savings of $425 million from consolidations in manufacturing—but as part of the deal IP incurred about $2.3 billion in Champion debt.

TIMING IS EVERYTHING

By March 2001 most economists agree that the global recession had started. Within one year of a retirement that could have been his crowning glory, Dillon was focused on paying down the debt from the Champion acquisition amid a brutal business climate. Demand for the company's paper and packaging grades had fallen to dismal levels. On CNBC he noted with regard to 2001, "The first quarter was perhaps one of the weakest quarters in fundamental demand that this industry has seen way back into the 1980s" (May 10, 2001).

BUSINESS LEADER AND ADVOCATE

During the period of dismal finances Dillon was outspoken about the U.S. government's role in sustaining the economy. CNBC quoted him as saying, "The strength of the U.S. dollar is a major problem for our industry. The size and the balance of trade deficit is a major problem and those are two areas that, from a public-policy perspective, we've also got to focus on" (May 10, 2001).

In May 2001 the Business Roundtable, a leading business association comprising the chief executives of leading U.S. corporations, named Dillon its new chairman, as such he would be an advocate for the fostering of economic growth, a strong global economy, and a competitive workforce. Bob Burt, the outgoing chairman of the Roundtable and the chairman and chief executive officer of FMC Corporation, was quoted by PR Newswire as saying, "John will provide a robust vision for the Roundtable as we grapple with a fluid economy and a changing workforce. We could not have chosen a better advocate for global leadership in today's world" (May 10, 2001).

DO AS I SAY, NOT AS I DO

But taking on such a public role for the normally discreet Dillon was not without its risks. In August 2002 the Business Roundtable took out a full-page ad in response to the accounting scandals that were contaminating corporate America: "Enough is enough," the ad said. In a scathing rebuttal piece in Fortune , a reporter instructed the group to "look in the mirror" (August 12, 2002). Despite advocating financial reform in the ad, the group failed to acknowledge how exorbitant CEO compensation packages—including those of its own members—contributed to the problem. It went on to list what 10 of the group's leaders had earned in 2001. According to the piece, Dillon's 2002 pay was an alarming $5.9 million.

AN ANTICLIMACTIC ENDING TO A LONG CAREER

Thanks to the weakened economy Dillon's billion-dollar acquisitions failed to translate into solid earnings in the final years of his career. Around the time of his October 2003 retirement Standard & Poor's cut short-term ratings on International Paper; Deutsche Bank followed suit, citing "continued industry malaise," as reported by the Wall Street Journal (October 8, 2003).

International Paper was not alone in its struggles, nor was it entirely complicit. Commodities such as paper were subject to market cycles, where solid demand kept prices and shares soaring, but weakened demand led to oversupply and falling prices; paper felt the brunt most of all. In fact in early 2004 the Dow Jones Industrial Average removed International Paper from its index; the company had been factored into the index for 48 years.

The company's removal from the Dow Jones average was all the more noteworthy considering that the old-economy peers Alcoa and Caterpillar still remained. Of the three names, International Paper had had the smallest market capitalization and the most discouraging performance record over the preceding several years. Since 1990 Alcoa's and Caterpillar's stocks had generated annual returns of more than 11 percent and 15 percent respectively; International Paper had reported mere 6 percent gains.

Jeremy J. Siegel, the professor of finance at the Wharton School at the University of Pennsylvania and the author of Stocks for the Long Run , told the Wall Street Journal , "It's my guess that with International Paper, the index people feel that they are pruning from the bottom" (April 1, 2004). Time will tell whether history will view John Dillon's career positively or not.

See also entry on International Paper Company in International Directory of Company Histories .

sources for further information

Ahlberg, Erik, "International Paper Seen as Weakest of 'OldSchool' Names in the DJIA," Wall Street Journal , April 1, 2004.

Defterios, John, and Deborah Marchini, "International Paper Will 'Continue to See a Very Good Market Condition and Very Good Opportunities,'" Ahead of the Curve , CNN, October 29, 1999.

Gural, Natasha, "International Paper CEO Speaks at Alma Mater," Associated Press State & Local Wire, December 5, 2000.

Haines, Mark (anchor), and Don Hays (reporter), Squawk Box , CNBC News Transcripts, January 7, 1999.

Haines, Mark (anchor), and Nanette Hansen (reporter), Squawk Box , CNBC News Transcripts, May 10, 2001.

Herera, Sue (anchor), "John Dillon, the Head of International Paper Talks about His Company's Deal to Acquire Champion International," CNBC News Transcripts, May 12, 2000.

"John Dillon, Chairman and CEO of International Paper Company, Elected New Chairman of the Business Roundtable," PR Newswire, May 10, 2001.

Reigber, Beth Demain, "International Paper Is Poised for Rally," Wall Street Journal , October 8, 2003.

Schlosser, Julie, "What the Roundtable Doesn't Talk About," Fortune , August 12, 2002, p. 44.

—Tim Halpern



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