Skip to Content
Global News Select

The Covid Crisis Taught David Farr the Power and -2-

In early March, St. Louis reported its first case of coronavirus. Shortly after, pharmaceutical giant Bayer temporarily shut down a major facility just outside of St. Louis when an employee was suspected to have become infected.

Mr. Farr went forward with a March 10 dinner with Emerson's latest class of new M.B.A. hires.

The annual dinner and drinks was a tradition. Emerson hosted the group in a private room at the Saint Louis Club. Mr. Farr loved to attend and spend time with what could be Emerson's next generation of leaders. He relished the mentor role and all that came with it.

"I'm shaking your hand so go wash your hands when I stop," he told them as he held their grip. The company would end up tracking the group for 14 days after the dinner to make sure no one got sick. No one did.

The day after the new-hire dinner, Mr. Farr arrived at J.P. Morgan's offices in Midtown Manhattan to meet with analyst Steve Tusa. The bank had changed its investor conference to a virtual event, but Mr. Farr was intent on participating in person -- he believed in-person interactions were crucial to running a business.

It was Wednesday, March 11. Later that day, the National Basketball Association put its season on hold after a player for the Utah Jazz tested positive for the coronavirus, the first time many Americans realized the virus would disrupt their daily lives.

Seeing Manhattan's vacant streets made Mr. Farr realize the virus was coming fast and might get bad. He mentioned to Mr. Tusa how empty New York was.

"We need a different plan," he wrote in an email that weekend to the other members of the OCE.

Two of the members were already in quarantine for two weeks because they were just getting back from vacations. Meanwhile, a worker on the fourth floor of the headquarters building had come down with symptoms resembling Covid-19 after a ski trip in Colorado.

Over the next few days, the company decided to shut down most of the building and have most people work from home. The executives stayed on the sixth floor. Mr. Farr paced the quiet offices and looked out with frustration at the empty parking lots.

It took 15 days for the test results of the suspected infection to come back. It was negative.

"I can't just wait for 15 days to take action," Mr. Farr said.

South of the border

At a small manufacturing facility about 100 miles from the U.S. border in the Mexican state of Sonora, an Emerson supplier makes a tiny component for a communication circuit used in numerous Emerson products. Officials in Sonora shut down the facility in late March.

"Every day we fight in Mexico" with its federal government, Mr. Farr said. "The Mexican president has not been really in tune to try and keep a coherent strategy."

He turned to Mike Train. The executive was an Emerson lifer who began his career in Hong Kong, where he was roommates with a young Mr. Farr, then running the Asia region. Already a close adviser, he had now emerged as something of a fixer.

When Pennsylvania shut down an Emerson foundry in Erie, dubbing it a "non-life-sustaining business," Mr. Train navigated federal and local bureaucracies to get it and other U.S. facilities back online.

Now his biggest problem was in Mexico, where Emerson has 19 factories with 10,000 employees. "There was never any thought that [Mexico] was going to be a problem in our supply-chain architecture," Mr. Train said. "Until it was." The key was getting certified as "essential."

With a few hundred coronavirus cases emerging in Mexico, the governors of several Mexican states issued stay-at-home orders and told nonessential businesses to close.

Mr. Train enlisted the Mexico ambassador in Washington to coordinate with her counterparts in Mexico City in a push to reclassify Emerson's plants. It failed.

Mr. Farr reached out to the White House for help, including talking to President Trump to make his case. "The president said just move the plants back" to the U.S., Mr. Farr said. "That is a good idea sure, but not something we can do today."

Mr. Farr was hearing from executives at other companies who were complaining of restrictions in Mexico.

Emerson teamed up with some, including Honeywell International Inc. and Trane Technologies PLC, to set up Zoom calls with regional governors and other Mexican officials to get the designations needed to keep their operations running.

Within days, more than 300 CEOs had signed a letter calling for help with supply-chain issues and getting companies the "essential" label.

Emerson outfitted its Mexican facilities with safety equipment, made sure distancing requirements were met and installed outdoor washing stations for workers before they entered the buildings, among other moves. It couldn't make changes in workers' behavior outside of work, where the company thought most people were getting infected.

It wasn't until May that Emerson's Mexico operations were fully authorized to reopen.

Elder statesman

By mid-March, the OCE was meeting in person every day at 2 p.m. to review virus statistics, updates about workers and talk about issues at Emerson facilities around the world. The executives also discussed their own stress relief efforts, including where to find deals on the best wines.

Mr. Farr worried about his workers' well being. He prided himself on knowing employees, walking factory floors and visiting dozens of facilities a year.

Outside the company, Mr. Farr knew that investors were concerned about what was happening. There was little information. Companies such as FedEx Corp. and Ford Motor Co. were declining to give financial guidance or were withdrawing their previous outlooks altogether.

Mr. Farr decided Emerson needed to report its second-quarter results and provide an outlook earlier than usual. He wanted to lay it all out for investors so they knew where Emerson was going, and he wanted to do it before other industrial companies. Among the giants, only GE by early April had issued a warning its latest quarter would miss its profit goal.

Mr. Farr saw himself as an elder statesman of U.S. manufacturing -- he is now the longest running leader in the sector. "I've known four Caterpillar CEOs since I've been CEO," he said. "I felt that a lot of investors would look to me to get a sense of what is going on."

He set a board meeting for mid-April to review results. He knew the board would have questions about Emerson's cash position, its ability to protect the dividend and its future direction, including active acquisition talks. He figured the company faced five or six tough quarters to get through the crisis.

Mr. Farr wanted reports from the business units on their plans, and he wanted to know what programs needed to be protected so they didn't slow down. He was watching to see who was stepping up to keep operations functioning, and who was disappearing. "And I don't forget," he growled.

On April 21, Emerson reported financial results for the second quarter, which ended March 31 and included only a few weeks of the U.S. shutdown. Profits fell 1% and sales dropped 9%. Underlying orders only fell 3%, but Mr. Farr warned investors that the "real impact started in the last 2 1/2 weeks in March."

Goodyear Tire & Rubber Co., Macy's Inc. and dozens of other corporate giants had slashed their dividends. Mr. Farr declared that Emerson's payout was sacred and wouldn't be cut.

"I'm not dead though people have tried to kill me. I'm still quite strongly in charge. And as long as I'm here, our dividend will not be cut," he said. Emerson had increased its dividend every year since 1956, and Mr. Farr was privately planning another increase in November.

Emerson surprised Wall Street by being one of the few companies to give a financial outlook for the year, cutting its sales, earnings and cash-flow projections.

"Thank God we're not in the travel industry," Mr. Farr said on the earnings call.

Mr. Farr laid out his strategy for returning to work. The economy couldn't wait for a vaccine. He said widespread testing with quick results was the key to being able to operate alongside the virus. Until then, companies and workers needed to do the best they could to minimize the spread. He revealed that an Emerson worker in England had died from Covid-19, the company's first death from the virus.

The detailed disclosures in the two-hour call won praise from analysts. Mr. Farr said it was necessary during the pandemic but warned them not to get used to it.

"We'll never give this much information again," he said.

Back to the office

Mr. Farr marked down May 4 -- the first date the governor of Missouri said businesses could start reopening offices -- as the day to open up the headquarters building.

People were starting to go outside. The sun was shining in St. Louis. The weekend before, Mr. Farr and his wife played golf for the first time since December. They walked 14 holes. He played horribly. A hairdresser came to the house to give them both haircuts. On Sunday, Mr. Farr climbed a ladder and cleaned the kitchen chandelier for the first time in years.

Some executives were leery about reopening quickly, but Mr. Farr was determined to move faster.

The factories were more or less already humming around the world because they were deemed essential. Adjustments were made to keep plant workers safe, including temperature checks, spacing out work and splitting shifts in some locations.

His strategy for headquarters was to take it step by step, reversing if any problems arose.

Before the shutdown, the long, low-rise corporate building typically had about 300 workers. Inside the front door there were stations for employees to go through: a temperature check, a list of questions to answer and supplies of masks if people wanted them. There was a nurse on hand.

(MORE TO FOLLOW) Dow Jones Newswires

December 04, 2020 10:31 ET (15:31 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.