Trends Magazine interviews Nancy McKinstry

_{By: Roeland Byl and Ilse De Witte}

This article was published in Dutch by Trends Magazine on December 22, 2022. It has been translated using AI technology, the original article is here.

Nancy McKinstry, the CEO who turned publishing house Wolters Kluwer into a technology company.

Wolters Kluwer shares are worth nearly seven times what they were on Sept. 1, 2003 when Nancy McKinstry took the helm. Among other things, the stock's strong performance made her the highest-paid CEO of an AEX company. The key to success, according to Nancy McKinstry, is in diversity.

Wolters Kluwer's transformation process began in the early 2000s. "When I became CEO, Wolters Kluwer was floundering to become a digital player," Nancy McKinstry recalls. "The first generation of the Internet had emerged in the 1990s. We were rather late to the realization that the Internet would fundamentally change our business. We really had to map out a whole new strategy to transform to a digital company."

Wolters Kluwer has been around since 1836. How hard was it to turn that tanker around?

NANCY MCKINSTRY. "We put three priorities first. Changing the portfolio was priority number one. We first divested businesses for a billion euros that were not essential. Then we bought companies for about 1 billion euros over a period of 5 to 10 years. This gave us strong positions in markets such as health, tax, legal, accounting and risk management."

"It started with the companies, but after that it was very important to have the right team with the right skills. We brought in new skills, mostly technology skills, through acquisitions but also through hiring and training the staff."

"Organic investment was the third component. We didn't have a very good track record in terms of investing and creating new products in-house. Since that time, we reinvest 8 to 10 percent of our sales in new or improved products. That investment in innovation has been the most critical element in our transformation."

How did you convince everyone of the new strategy?

MCKINSTRY. "Change management, as they call it, is one of the hardest things there is. It starts with a clear strategy. Saying to everyone: that's where we're going. You have to create clear expectations. Along the way to the end goal, milestones need to be celebrated. People need to

feel they are making progress. We succeeded in getting senior management on the same page. That certainly took time and energy. We had to restructure a lot, especially in the European operations. We had to say goodbye to people and integrate new people into the organization. It was essential for the survival of the company to go digital."

"People understand that better and better as they see more results. It helps when employees hear that customers are happy and they see new products coming to market. That's how you create momentum and people get a sense that the company is on the right track."

For the first 10 years, you didn't create that much shareholder value. It has been especially hard in the last 5 to 10 years.

MCKINSTRY. "We started the transformation almost 20 years ago. In the beginning the digital business was growing, but with printing it went downhill so fast that in the results there was not much notice of the transformation yet. For quite a few years, the company barely grew. Then digital gained momentum and print made up a smaller and smaller percentage of sales. When I took over, digital accounted for 25 percent of sales and now it accounts for 90 percent of sales."

Can we call Wolters Kluwer a technology company?

MCKINSTRY. "We are a technology company. But what distinguishes us from other technology companies is that we combine very specialized domain knowledge with technology. We are experts in tax, in law, and so on, and we use that deep domain knowledge to develop special software tools. We started with those expert solutions ten years ago. Those solutions create productivity gains for our customers."

"We are actually in our second transformation now: from digital to specialized solutions. About 56 percent of our revenue, or, more than 1 billion euros in sales comes from those solutions. It's Wolters Kluwer's fastest-growing product group, growing 9 percent in the first half of 2022."

"Wolters Kluwer has changed a lot, not only in terms of the products and services we offer to customers, but also in terms of personnel. Our largest group of employees today is in technology. Before the transformation, there were very few technology people in the company. Back then there were mostly people working as publishers or salespeople and many people working in production."

You have successfully transformed Wolters Kluwer into a digital company, but the world is not standing still. Do you see opportunities in new technology?

MCKINSTRY. "We already use a lot of cutting-edge technology today. We created the Digital eXperience Group (DXG) 15 years ago to closely monitor technological advances and build state-of-the-art solutions. Our focus today is on five technologies: artificial intelligence, robotic process automation or RPA, natural language processing which is very important for business content, blockchain, predictive analytics and machine learning. The latter two go hand in hand."

Can you give a practical example of how Wolters Kluwer deploys that advanced technology?

MCKINSTRY. "For example, we have a product vSim for nursing students, which involves quite a bit of machine learning and artificial intelligence. It's a kind of simulation, where students end up in an environment where they have to measure a patient's blood pressure, for example. So they can test their skills, and vSim tells them what they still need to practice. Advanced technology is involved in 40 to 50 percent of our products to help them learn faster or work more productively."

How do you see the future?

MCKINSTRY. "We're going to continue to evolve and expand on our core skills. It's mainly about continuing to expand in the areas where we are already strong. In the Metaverse and blockchain, which is sometimes called the Internet 3.0, we are only at the very beginning. We still need to expand those applications."

What is the biggest challenge right now for Wolters Kluwer?

MCKINSTRY. "Attracting talent. We have a lot of vacancies, especially in technology, but also in sales. We are succeeding reasonably well in keeping talent on board, but like with many other companies, recruiting is difficult. With the slowdown in the economy, it may become easier to recruit, but today there is still a shortage of highly skilled people for our technology and sales departments."

Companies complain about costs that are soaring. How hard is it for Wolters Kluwer to pass on costs?

MCKINSTRY. "Wolters Kluwer has a fairly recession-proof business model, with more than 80 percent recurring revenue through subscriptions to software and content. Of course, we do have some product lines that are affected by the economic cycle. Our biggest cost is personnel. We see wages going up over the years. Our response to that is that year after year we gain efficiency in our processes and try to make savings, which creates room to better compensate people. We improve our products year after year, which allows us to raise prices. We don't have to worry much about higher raw material prices, only about wage inflation, and we try to compensate for it that way."

In Belgium, there is automatic wage indexation, so our country has a labor cost handicap compared to neighboring countries. Does Wolters Kluwer take a country's labor costs into account when investing or expanding?

MCKINSTRY. "We are present in every market where we sell products or services. We strive to be local for local. For example, our Chinese divisions are run by residents of China, local people who are knowledgeable about local taxes and know the customs. IT people can still work from anywhere, but marketers, salespeople, product managers, and so on, have to be local. In all the

markets where we are present, we try to offer competitive wages to our people. We collect data on wages in all markets and base on that how high the average wage should be."

You live and work alternately in the Netherlands and the United States. You travel a lot to the group's various entities around the world. Do you sometimes notice cultural differences?

MCKINSTRY. "I am American, which is perhaps helpful because more than 65 percent of our sales come from the United States. But we have a very diverse workforce. Different nationalities, different races, about 46 percent of the employees are women. Diversity is something you have to work on every day. That's the crux. There are unconscious biases. If you don't have enough diversity among the candidates for the job in a vacancy, you have to start over. You have to train and prepare people enough to take on more responsibility. If you don't have enough diverse candidates left for a promotion, you have to go back to the drawing board. It takes daily efforts, at all levels of the company."

"Our company values define the culture at Wolters Kluwer. We tend to work in teams. That too is something that has changed from the past. Publishing a book was a very individual activity. We had many employees who contributed individually. Now almost everyone works in a team, because it takes a team with input from the customers, salespeople, specialists and IT people to develop and sell digital products. That diversity is one of our strengths. I have first-hand knowledge that the most diverse teams, deliver the most innovation and the best business results. I truly believe that diversity and innovation go hand in hand. With innovation comes growth. There are certainly cultural differences in our organization, but they do not influence decision-making. We make decisions based on data. What are the facts? What are the customers saying?"

How important is sustainability to Wolters Kluwer?

MCKINSTRY. "I can put on two hats when it comes to sustainability. If I put on the commercial hat, then I can tell you that we have products like Enablon in house that help companies measure how far they are from achieving targets such as the risk of environmental damage or workplace accidents. We also have our own objectives at Wolters Kluwer, which revolve mainly around diversity and good governance. We also try to do our bit for the environment by optimizing the use of data servers in order to control energy consumption. The compensation of leadership are also linked to achieving all these objectives."

Did you learn much from the Covid-19 crisis?

MCKINSTRY. "Like all companies, we have learned to work remotely, without loss of productivity, but more importantly, we have learned to respond even faster to our customers' needs. To give an example. In the United States, the government launched the Paycheck Protection Program, government-guaranteed loans to help small businesses keep their employees employed. We developed software at lightning speed to help banks make all those loans to businesses."

"The big challenge now is getting people back together more. When people come together

physically, there is more belonging and they start working together even better. We've also started measuring belonging through surveys. We've been gauging employee engagement for some time, but a little over a year ago we started measuring not only engagement but also a sense of belonging. There is a strong link between those two feelings among employees and employee loyalty to their employer. If you want to prevent good employees from transferring to another company, it's crucial to capture those feelings. We also take feedback through those surveys about what we can do better as a company very seriously."

You've had a nice run with Wolters Kluwer, and that earned you a nice salary. A few years ago, shareholders demanded pay restraint. In 2021, with 14.4 million euros, you were no longer the highest paid CEO of an AEX company, according to Dutch media. Did you think that shareholder demand was fair?

MCKINSTRY. "Maybe first briefly outline what had happened. Most of my remuneration is linked to the share price evolution and earnings per share. So I earn more if the share becomes worth more. That's how it works. The stock has performed very strongly over the past ten years and so my pay had also risen. There were shareholders who did not agree with the level of my salary. We listen to our shareholders, just as we listen to our customers. The shareholders are the owners of Wolters Kluwer. I have shares myself. We have made adjustments to my salary to accommodate the shareholders. I fully support that."

Something typically European?

MCKINSTRY. "By American standards my salary was indeed not that remarkable, but in the European context there is more discussion about that. But again if shareholders have something to say, companies should listen to it."