Ramstad: Roman's hard choices as CEO put 3M on cleaner, leaner path

3M underwent the largest restructuring in its history last year. It will spin off its largest business in three weeks. On Tuesday, it hired the person who will decide what happens next.

Minnesota's most storied manufacturer, its original blue chip and for decades its largest company, will now be led by Bill Brown, former CEO of L3Harris Technologies and a longtime defense industry executive.

It's only the third time in 122 years 3M has turned to an outsider for a CEO. Brown steps in after Mike Roman, a 36-year veteran of the company, led it for six dramatic years, the last one spent building to this moment.

3M's stock is trading at half the value it was three years ago. Revenue and headcount are smaller, and set to shrink even more when 3M's health care unit becomes an independent firm called Solventum next month.

More than a few investors and analysts thought Roman stayed in the job too long. However, I suspect that in time they will regard Roman more favorably. Over the last year, he cleared out some vexing problems and leaves 3M positioned for speedier organic growth and dealmaking.

"While we consider the company's strategy to have been poor over the last several years, we model improving returns looking forward," Joshua Aguilar, an analyst at Morningstar, wrote after the news was announced.

Analysts held a brighter opinion of Roman during the pandemic, when demand for 3M's N95 respirators and other products soared. The company ramped up production while under intense public scrutiny.

And he owned up to environmental costs that the company ignored or publicly deflected for decades. In the last year, Roman brought some financial certainty to 3M's future by tentatively settling one big PFAS case. There are others still pending.

He also settled a sprawling product liability case involving earplugs sold to the military by a business 3M acquired. His initial strategy for that litigation was to put the by-then 3M subsidiary into bankruptcy, an approach that was ultimately rejected by a court.

The decision to spin off the health care business, which accounted for about 25% of its $32.7 billion revenue last year, forced 3M to trim expenses shared by that unit with 3M's other three business lines. 3M ended 2023 with 85,000 employees, down from 92,000 at the end of 2022.

"We took the biggest restructuring in the history of the company and that wasn't a top-down, eliminate 10 percent of the headcount," Roman said at an investment conference last month. "It was really to accomplish some strategies we're driving."

As well, it was geared toward a leadership transition this year. Roman will remain as executive chair of 3M after Brown arrives in May.

Brown, who is 61, built a solid reputation among investors with his leadership of defense contractor Harris Corp. before and after its 2019 merger with L3. The post-spinoff 3M will be slightly larger than L3Harris was immediately after it combined.

One of the first things analysts will listen for Brown to say is whether he plans to maintain or cut 3M's dividend. The company is one of 50 or so known as a "dividend king" for having increased its dividend for at least 65 years.

Roman told investors just a few weeks ago that "paying an attractive dividend" would remain an important part of 3M's capital allocation strategy.

Morningstar's Aguilar wrote that he believes 3M will allocate "a substantial portion of its capital back to shareholders" even if it takes on some debt to do so. The magical track record of 3M's dividend, though, will no longer be in its hands.

"Solventum could decide to reduce its dividend payment, effectively reducing the total dividend 3M shareholders once received," the analyst wrote.