Source: Saint Paul (Minn.) Pioneer Press
Ken Melrose will leave at the top of his game Tuesday when he wraps up his 21-year run as CEO at Toro Co. His move caps a tenure almost unmatched by any of his big-company peers here.
For Melrose personally, the success has turned out to be too much. So great are the riches the Bloomington company's achievements have showered onto him that he now finds himself facing a new challenge: how best to reduce his wealth.
Under his leadership, Toro grew exponentially. On a compounded basis, sales rose an average 8 percent annually from 1983 to 2004 and net income climbed 15 percent a year.
The company has also diversified by moving beyond lawn mowers and snow throwers to a variety of other products and services less vulnerable to recessions.
The result: On a split-adjusted basis, Toro's stock price has risen to nearly 22 times its level when he took the top job in 1983.
The rising stock price has benefited long-term Toro shareholders immensely.
Thanks mostly to his stock options, Melrose is among the largest of the stockholders with 4.6 percent of the company's outstanding shares. His stake is worth nearly $87 million, based on Toro's closing price Tuesday of $87.31.
Not bad for a couple of decades as the boss. But this bonanza has had its uneasy moments for Melrose.
"When I get up in front of the employees and say, 'We did it, team!' I think the employees are sitting there thinking, 'Well, yes, we did it, Ken, but you got all the money and we just got our 4 percent pay increase.'
"You get to the point where you say, 'Why do I need more stock?' How much does a person need?"
So when Melrose found himself with a $9 million windfall after exercising a 10-year package of stock options four years ago, he decided to give away much of it.
Roughly half of the total went mostly to establish a family foundation and to scholarships for children of Toro workers. Federal and state tax authorities took half or so of the remaining $4.5 million.
Melrose sought advice from Ken Dayton, the famed Twin Cities philanthropist, shortly before Dayton died in 2003.
Dayton was a leader in the "1 percent club," a group of several hundred well-to-do Minnesotans who have committed to giving away annually either 1 percent of their assets or 5 percent of their income, whichever is greater.
Dayton's advice: Give much of your wealth away while you're still alive, and have fun doing it.
Gradually, Melrose is doing that.
Ford Bell, president of the Minneapolis Heart Institute Foundation, headed the 1 percent club from 2000 to 2003.
"I'd like to think a lot of (wealthy) people are wrestling with this quietly," says Bell. More likely, he says, many of them are not thinking about it at all, and some are adamantly opposed to such prescriptive giving.
Melrose, a Florida native, came to Minnesota in 1967 to work for Pillsbury.
Three years later, he joined Toro.
In 1981, when he was named president, Toro was close to bankruptcy. Sales fell 38 percent to $247 million. The company lost $13 million.
A recession was on, and that meant another swoon for Toro. Consumers stop buying lawn mowers and snow throwers when the economy turns down.
But things were looking up when Melrose became CEO in December of 1983. He brought in some of that decade's reigning consulting gurus -- Tom Peters, Ken Blanchard, Steve Covey -- to help him overhaul the company's culture.
Eight years later another recession chugged in.
This time, the company's diversification plans were beginning to click, so Toro wasn't hit as hard as in the early 1980s. In 1992, sales fell only 10 percent to $639 million. The firm lost $22 million that year, but got back into the black much more quickly than from the prior recession.
By 2001, as yet another recession arrived, a Melrose-led Toro had gone through a makeover.
New products and services in its fast-growing professional division -- irrigation systems, landscape management, turf products for stadiums, golf courses and parks -- came to account for roughly two-thirds of sales; mainstay consumer products like lawn mowers and snow throwers had the remaining share. That was the reverse of the ratio in the 1980s.
Thus Toro was cushioned from the impact of the 2001 recession. Earnings actually rose 11 percent; sales climbed 1 percent.
Then Toro stock, widely panned in the late 1990s as a relic from the "Old Economy," climbed onto a rocket ship as the dot-coms crashed and burned.
Melrose will hand his CEO job over to President Michael J. Hoffmanon Tuesday, but he'll continue indefinitely in a new post as executive chairman.
He doesn't see himself going out at the top, predicting good things ahead for Toro. "You ain't seen nothing yet," Melrose told a doubter last month.
Analysts tend to agree. Generally, they see net earnings rising another 9 percent to 14 percent this year to $112 million to $118 million on a 9 percent sales gain to $1.8 billion.
Whatever the stock does as the days wear on, Melrose likely will be holding fewer Toro shares and not more.
Says Bell: "We definitely need more people like Ken Dayton and Ken Melrose."