Whipple, Kenneth 1934–
Chairman and chief executive officer, CMS Energy Corporation
Education: Massachusetts Institute of Technology, BA.
Career: Ford Motor Company, ca. 1959–1986, various positions including president of Ford Credit and vice president and head of corporate strategy; Ford Europe, 1986–1988, chairman and chief executive officer; Ford Motor Company, 1988–1999, executive vice president and president of Ford Financial Services Group; Ford Credit, 1997–1999, chairman and chief executive officer; CMS Energy and Consumers Energy, 2002–, chairman and chief executive officer; Glenlore Enterprises, chief executive officer.
Awards: Max Fisher Community Service Award, 1999.
Address: CMS Energy Corporation, One Energy Plaza, Jackson, Michigan 49201; http://www.cms energy.com.
■ After almost 30 years with Ford Motor Company, Kenneth Whipple became Ford's executive vice president and Ford Financial Services Group president in 1988. President of Ford Credit was added to his responsibilities in 1997. He remained in those positions until he retired in 1999. Retirement did not last long, however. In May 2002, at the age of 67, he was asked to become interim president of the scandalized Michigan-based CMS Energy when the company's chairman, William T. McCormick Jr., resigned. CMS was teetering on the brink of bankruptcy and reeling from charges of unethical energy swaps called "round-trip trading." Whipple accepted the challenge, and the position quickly turned permanent. In an interview he refused to comment on when he planned his second retirement. "I don't believe in picking retirement dates," he said. "The day you do that you become less effective" (Knight/Ridder Tribune Business News, April 12, 2003).
AILING COMPANY CHOOSES FINANCIAL WIZARD
Effectiveness and a proven ability to attain results were the reasons Whipple was chosen to head CMS, which was Michigan's second-largest utility. With nose-diving stocks, a debt of $7 billion, hostile employees and shareholders, three top executives ousted, and a loss of credibility, CMS was in trouble. Its board of directors desperately needed a strong and experienced leader. Whipple had been on the board since 1993, so he was no stranger to other directors or to the company. Along with being chairman and a board member of many other organizations, he was chief executive officer (CEO) of Glenlore Enterprises, a Michigan-based company that specialized in private investment and strategic consulting to chief executives. According to an article by Laura Bailey in Crain's Detroit Business, Whipple's colleagues in other organizations had experienced his tenacity and determination and described him as "a financial wizard with the requisite diplomacy and finesse" to lead the company back into the light (May 27, 2002).
Bailey noted that Whipple, a board member of Detroit Public Television since 1988, had been heralded by the station's chief operating officer (COO) and manager Dan Alpert. "With Ken, it's integrity and energy and this piercing ability to analyze a situation and figure out how to strategically attack it." Alpert said that Whipple's financial expertise and influence helped the station succeed in paying out $14 million following an unfunded federal mandate to update its broadcasting system from analog to digital. According to Bailey, Virgil Carr, CEO of the United Way Services Committee, described how that organization came into being under Whipple's guidance: In less than a year, Whipple persuaded two of Detroit's largest human-services agencies—United Way for Southeastern Michigan and United Community Services of Metropolitan Detroit—to meld their entirely different philosophies, cultures, and volunteers into a large and effective service organization. Whipple set the tone for the new organization, helped choose its executives, and led one of the most successful campaigns in United Way's history, which raised over $65 million.
THE BUCK STOPS HERE
Whipple's interim appointment at CMS became permanent once the full complexity and seriousness of the company's financial position became obvious. "I was a little naive in those first couple weeks," Whipple said, "but I was hired to try to turn the place around and I'm 100 percent focused on that" (Knight/Ridder Tribune Business News, April 12, 2003). According to Amy Lane of Crain's Detroit Business, shortly after Whipple took office at CMS he announced that the board would take full responsibility for the company's financial and ethical credibility and that "the buck stops here" (May 27, 2002). CMS was by this time under investigation from three federal agencies, including the U.S. Securities and Exchange Commission, due to highly unethical "round-trip" buy-back electricity trades by its energy-marketing unit. The unit sold power to another company and immediately bought it back at the same price. The "swaps," which artificially inflated revenue by more than $4.4 billion between May 2000 and mid-January 2002, caused CMS's shares to rise sharply.
Under Whipple's leadership the CMS board quickly appointed a committee to investigate the trades. Included on that committee were Kenneth Way, chairman of Lear Corporation, Kathleen Flaherty, former president and COO of WinStar International, and Whipple. Following the investigation the company announced that they found no evidence of a deliberate attempt to manipulate share prices. Lane reported that when Whipple was asked about the legality of including revenues from the swaps in their income statement, he said: "It was legal as I understand it. I believe it met accounting standards. It didn't meet the standards of this company" (Crain's Detroit Business, May 27, 2002). CMS subsequently implemented new trading policies and tighter controls to ensure that similar trades would not happen again. In a June 2, 2002, Detroit News article, James V. Higgins noted that Whipple apologized for the corporation's actions. "It's wrong, and we're sorry. And we're doing everything in our power to make sure it doesn't happen again."
AN EVEN BIGGER TASK AHEAD
Higgins believed Whipple had a much greater task ahead of him than simply righting a wrong. "His greater task is to repair the damage to the company's balance sheet and image from a seriously flawed program installed several years ago by McCormick." Higgins stated that the company's major problems began with deregulation of the power industry and CMS's decision to expand from a local utility company into a global enterprise. He noted that working in foreign political and financial environments, some of which are often unstable, is always risky business, and it proved disastrous for CMS.
Whipple was not one to point fingers at any one individual: "If you look at our ventures, the successful and the unsuccessful ones, there aren't any cases where we didn't do a good job. Where we weren't so good … was figuring out what the environment was going to be like," Higgins reported. In particular, Whipple said, that meant what prices they could get and whether or not foreign governments would stick to their stated deregulation schedules. As a result, the company suffered more than $620 million in losses in 2001. Its stock prices plunged to below $4 in 2002 from a high of around $40 in 1998. In July 2002 dividends were cut in half and then totally eliminated in January 2003 for a savings of $100 million a year. "I, and the board, couldn't stomach the idea of borrowing incremental money only to pay the dividend," Whipple said. Taking a tough but realistic stance, he added that the dividends would not be reinstated until it was prudent, which he estimated would be a "couple years…. I wish it was gonna be sooner. But you don't take that kind of drastic action and then say two quarters later that everything's fixed, because it's not" (Knight/Ridder Tribune Business News, April 12, 2003).
Under Whipple's stewardship, the company was confident it could eventually return to profitability and provide attractive dividends to entice investors. A similar confidence was beginning to show among major debt-rating agencies and the company's bankers. Banks had committed $1.4 billion to help CMS pay off debts due between mid-2003 and mid-2004. In a further cost-savings move, CMS consolidated its Dearborn-based headquarters with the headquarters of their subsidiary, Consumers Power, a gas and electric operator in Jackson, Michigan. "I like the fact that I can see well into 2004 now without having to worry about where the money's going to come from…. We're well on our way to achieving liquidity peace," Whipple remarked (Knight/Ridder Tribune Business News, April 12, 2003). He added that he personally would not be satisfied until CMS had regained its reputation as an "honest company that makes good on its promises" (Detroit News, June 2, 2002).
INSTALLS A SIMPLISTIC APPROACH
To achieve that goal Whipple introduced a "back-tobasics" strategy that would return the company to a format similar to one followed when it was Consumers Power. In little less than a year, Whipple stabilized the listing CMS and its subsidiary Consumers Energy. In September 2002 CMS sold its 66 percent ownership in a Thailand power plant, which Whipple described as just one step in the company's ongoing effort to optimize asset proceeds of $2.9 billion. In December 2002 the company announced that it would sell its U.S. Panhandle Companies and their interstate natural gas pipeline business and accompanying subsidiaries to Southern Union Panhandle for $1.828 billion ($662 million in cash and $1.166 billion in debt assumed by the purchaser). The transaction would bring total sales or sales agreements to $3.6 billion in 2002 alone.
Whipple's aggressive asset-sales program was on track, and he was quoted in a Panhandle Energy news release as commenting: "We will continue to pursue strategies that support our back-to-basics approach and our focus on improving our balance sheet, reducing risk, and strengthening our liability" (December 22, 2002). Proceeds of the sale would further reduce the company's debt, which had by that time been reduced by $860 million, including the pay down of $239 million in bank debt. Whipple went on to direct the sale of almost all of the company's businesses outside of Michigan, which restored the faith of investors and bankers alike. Jeff Bennett, who interviewed Whipple for Knight/Ridder Tribune Business News, said the new chief introduced a "simplistic approach to what has always been a complex company" (May 6, 2003).
In the interview Whipple outlined his strategy that, for 2003 at least, included focusing on making the company smaller and leaner, cutting three hundred positions, suspending the 401K employer-matching program, offering a $2,500 bonus for early retirement to provide positions for displaced workers. He noted also that the company sold all of its corporate jets the previous year. He said that while remaining employees were paid competitively, they were being asked to make sacrifices, such as receiving their merit-increase awards in restricted stock rather than cash. To ease employee unrest and uncertainty Whipple implemented a series of meetings to open communication, which he said would continue even after the company was back on its feet. "You can't let folks feel that they aren't part of a place or not part of management. You have to continue to have a shot at management," he added.
SLOW BUT SURE
In the third quarter of 2003, CMS announced a $77 million loss. Thanks to Whipple's ongoing asset-sales program, however, debt dropped from $7.3 billion in 2002 to a projected $6.2 billion at the end of 2003. In a May 6, 2004, press release Whipple said that, although their quarterly financial results were down—several reasons for which were beyond the company's control, such as cooler summer weather, a slow economic recovery in the state of Michigan, and consumers purchasing their power from competitors—he believed the company's business plan was solid and that it continued to affect financial flexibility and debt reduction while meeting financial commitments. Although the company reported a loss for the first quarter of 2004 of $11 million, that was $66 million less than the previous quarter. The company netted a $44 million income in 2003 and saw a one-year sales growth of 36.5 percent. Whipple reiterated his steady philosophy: "We are maintaining our focus on operation excellence, increasing our financial flexibility, and reducing debt. Our goal is to become a smaller, stronger company with more predictable earnings and we're making progress toward that goal" (CMS Energy Media Center).
See also entry on CMS Energy Corporation in International Directory of Company Histories.
sources for further information
Bailey, Laura, "Whipple Lauded for Financial and Diplomacy Skills," Crain's Detroit Business, May 27, 2002, p. 38.
Bennett, Jeff, "Michigan's Second-Largest Utility Alters Focus to Overcome Debt, Scandal," Knight Ridder/Tribune Business News, May 6, 2003, p. 1.
"CMS Energy Reaches Agreement to Sell CMS Panhandle Companies for $1.8 Billion to Southern Union Panhandle: Proceeds to Accelerate Debt Reduction and Bolster Liquidity Improvement Plan," Panhandle Energy, http://www.panhandleenergy.com/newsreleases_dtl.asp?page=NR_122202.htm.
"CMS Energy Reports First Quarter Results and Reaffirms Ongoing Earnings Guidance," CMS Energy Media Center, http://www.consumersenergy.com/apps/NewsArticleCMS.asp?ID=1127.
Higgins, James V., "Ford, CMS Execs' Chance Encounter Shows Industry Likeness," Detroit News, June 2, 2002.
Lane, Amy, "CMS Board: 'Buck stops here'; Interim CEO Whipple Seeks to Restore Credibility," Crain's Detroit Business, May 27, 2002, p. 3.
Walsh, Tom, Knight Ridder/Tribune Business News, April 12, 2003, p. 1.