15 February 2023

Counterintuitive Management



By Jim Thompson

In the Wall Street Journal a couple of weeks ago, there was a discussion on the decisions made by big oil. One had to read several stories to put it together, but the exercise was worthwhile and instructive. On the one hand, Chevron and Exxon have been following a strategy of staying the course and have been rewarded with eye-popping profits. On the other, BP has moved towards a mitigating climate change, ESG strategy and not performed so well. Just my luck, the one I owned in my little stock portfolio that my wife allows me to play with is BP.  

In the pulp and paper industry, senior management has the same sorts of decisions to make and I am not talking about climate change and ESG. What I mean is this—do you follow the crowd or do you chart your own path? Based on the containerboard results in December, one might think that further investments here are unwise. And believe it or not, I have had clients who engaged me for strategic studies in the past that had no more vision than one month even though my assignment was to look out five years.

Likewise, I used to say the price of natural gas was determined by the traders looking out the windows of their commuter trains on the way from Connecticut to Manhattan each morning. Local influences are powerful. And so is group think.

So how do I approach strategic thinking in the pulp and paper industry?

First, does the company have enough access to cash to think long term? Cash poor companies cannot think long term.

Second, assuming my client has passed that hurdle, I fall back to the law of cellulose I came up with many years ago.

Paper products are primarily cellulose. If that cellulose is used to convey ideas (books, magazines, newspapers, copy paper), long term the business is dead, eclipsed by electronics. If that cellulose is used for its physical strength properties (tissue products, coarse packaging, fine packaging) the business has excellent prospects.

It is as simple as this. 1. Check your “bank account” and 2. Do you exploit cellulose for its physical properties?

If the answer to 1 is, “I am comfortable” and the answer to 2 is “yes” then continue with expansive long-term strategies.

And remember, at least for the moment, stockholders just may be unimpressed by your climate change and ESG initiatives.



There is, of course, much more to a solid strategic plan, you

need to get into the weeds to develop a solid one. But don’t jump into the weeds before you have the top-level thinking correct.

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