Yet Cote, 57, clearly is most passionate about energy-saving practices, products and services, emphasizing that the first solutions to the energy crisis are readily available. “We need to act now,” he insists. To do its part, Honeywell asserts, fully half of its portfolio — from programmable thermostats to high-tech air-traffic management systems — involves conserving or generating energy. Cote has no doubt that the world can ensure ample, even inexpensive fuel sources. But first, he says, we need to change the argument from global warming to something a little less sexy — and less politically charged: economic security, which is a far more immediate concern for most people. “Oil doesn’t always come from the most stable parts of the globe,” says Cote. “Low-cost energy self-sufficiency stimulates industry growth and job creation.” What’s more, he says, much of the rest of the world already encourages efficient practices and generation of new fuel sources. “China is being measured harshly against Copenhagen standards,” says Cote. “But while we are still arguing about energy solutions, China is walking the talk with solar, carbon sequestration, wind and efficiency products such as building controls. The U.S. could put itself at a real economic disadvantage in a competitive race with China,” he warns. (For a comprehensive view of Cote’s answers to energy issues, see “How to Solve the Energy Crisis,” on page 16.)

125 Years of History
Honeywell traces its roots to 1885, when inventor Albert Butz patented a furnace regulator and formed the Butz Thermo-Electric Regulator Co., later renamed Minneapolis Heat Regulator Co. By 1906 a young engineer named Mark Honeywell had founded the Honeywell Heating Specialty Co. in Wabash, Ind. The two companies merged in 1927 to form the Minneapolis-Honeywell Regulator Co. Later milestones include the 1953 introduction of the T-86 round thermostat, the most popular thermostat in the world. Honeywell entered computer production in 1955 with the D-1000, a $1.5 million, 25-ton mainframe; that business became known as Electronic Data Processing. In 1969, Honeywell instruments landed on the moon, and they have been on every U.S. space mission since. Today, Honeywell says it is in more than 100 countries and ranks No. 63 in the Fortune 500, with $30.9 billion in 2009 revenues. Its portfolio consists of four business units (see box at right) that sell products as diverse as gas and smoke detectors, Autolite spark plugs, fertilizers and jet engines, plus a host of energy and security services. As for those other megatrends that Cote talks about, Honeywell Aerospace says it is devoted to air safety and efficiency. Regarding security, the company says it provides electronic surveillance of refineries, factories and pipelines that are considered terrorist targets. And wireless technologies span most Honeywell divisions, the company says, as Honeywell engineers provide wireless solutions for security devices, avionics, programmable thermostats and more. Although having such a broad portfolio is one reason that Scott Davis,* an analyst at Morgan Stanley Research, part of Morgan Stanley (MS), says he likes Honeywell, he suspects that its breadth makes it difficult for potential investors to get a handle on the company. “It’s an underrated company, possibly because some of its products are esoteric and hard to understand — such as some of its specialty materials and aerospace products — and others are prosaic and focused on such simple things as programmable controls that just aren’t flashy,” Davis observes. But, Cote says, Honeywell is involved in all kinds of flashy technologies. He outlines three examples. The first is a 13-inch remote-control helicopter that can travel up to 40 mph and carry a five-pound payload, such as a video camera; potential customers for the device include the military, police departments and companies concerned about the security of large areas like refineries, ports or transmission lines. Cote’s second example is the Honeywell Image Triage System, currently used by the U.S. Department of Defense, which measures people’s mental activity when they look at images on video screens, he says. And the third is Spectra, a bullet-resistant fiber that the company reports is 15 times stronger than steel. “When people talked about getting the ‘good’ bulletproof vests to our troops in Iraq,” Cote says, “it was our Spectra material they were referring to.”

Clearing the Decks
Cote had his hands full when he came onboard as CEO in February 2002. Neither the 1999 AlliedSignal Inc.-Honeywell merger nor the 2000 acquisition of security systems manufacturer Pittway had been fully integrated. The companies together created what one Honeywell executive describes as a “dysfunctional” culture, with managers from the acquired companies and Honeywell barely speaking to each other.

What Honeywell characterizes as a near deathblow followed in late 2000, when it was courted first by United Technologies Corp. (UTX) and then by General Electric Co. (GE), which entered into an agreement to acquire it. In a landmark decision, the European Commission prohibited the merger with GE the following year, saying that an alliance of these two American companies would hurt competition in Europe. Meanwhile, Honeywell floundered, explains Mark James, senior vice president for human resources and communications. He says key employees and important customers left, new business and product development were put on hold, and morale sank. Then the post-Sept. 11, 2001 recession hit Honeywell hard, making matters even worse, recalls James. That year, Larry Bossidy, AlliedSignal’s legendary CEO and briefly Honeywell’s chairman (from the time of the AlliedSignal-Honeywell merger until his retirement in April 2000), returned to captain the combined company on an interim basis. During the 12 months of his tenure as Honeywell CEO, Bossidy launched cost-cutting initiatives, sold off noncore businesses and laid off nearly 25 percent of the workforce. These moves, the company says, were aimed at clearing the decks for a new CEO. In the meantime, Cote says, he was following a similar return-to-bare-bones strategy at global manufacturing and services company TRW Inc., where he served as CEO from 1999 until he joined Honeywell in 2002. (TRW was acquired by northrop grumman corp. [NOC] after Cote’s departure.) Like Bossidy, Cote is a GE alum, having started there in 1973 working the night shift at an aircraft engine plant while he attended the University of New Hampshire. After earning his bachelor’s degree in business administration in 1976, the onetime fisherman rose through the GE ranks, culminating in his position as CEO of the appliances division. Although the two had never worked together — Bossidy left GE as vice chairman in 1991 when Cote was an executive in the appliances division — Bossidy valued a GE background and helped recruit Cote to succeed him. Both men were proponents of Six Sigma and the results-oriented management style made famous by former GE CEO Jack Welch. To call Cote action oriented may be an understatement, say those who know him. A sportsman who enjoys fishing in addition to golfing, hunting, scuba diving, skiing, riding his Harley (harley-davidson inc. [HOG]) and exercising, he hit the ground running when he arrived at Honeywell. But his colleagues also insist that he’s reflective. “Dave manages both strategically and operationally,” James says. “He’s tenacious. If there’s a loose thread in a presentation, he’ll pull it until it unravels. Managers know this, and it causes them to think problems through.” “Dave has had us open our aperture,” adds Tim Mahoney, president and CEO of Honeywell Aerospace. “He gets people to aspire to deeper thinking. Today Honeywell managers think more globally and across technologies.”

Three Big Strategies
With Cote’s arrival at Honeywell, the new CEO viewed the company almost as a clean slate. “We spent some time thinking through what we wanted Honeywell to be and what we had to do to get there,” he recalls. “We concentrated on three big strategies.” The first strategy was to create a new mindset at the company, which Cote calls “One Honeywell.” To do so, he assembled his executive team and outlined what are now known as Honeywell’s 12 Behaviors, which include actions leading to growth, customer focus, leadership, results, globalization and more. (See nysemagazine.com /honeywellbehaviors for the full list.) These Behaviors needed to be applied to goals, explains Cote, so his second strategy became known as the Five Initiatives: growth, productivity, cash, people and enablers — tools that Honeywell uses to standardize and drive improvement of all business processes, from supply-chain management to R&D. (For a detailed example of the enabler strategy, visit nysemagazine.com/honeywellenablers.) Honeywell then set up an appraisal system to measure how well employees, from factory workers to top execs, pursue the Behaviors and meet the Initiatives on an ongoing basis. Adherence earns merit raises and promotions. James says 93 percent of executive promotions came from Honeywell’s bench in 2009, whereas nearly all management jobs were being filled externally when Cote first came on board. “Dave created regular drumbeats at Honeywell,” says James. “HR meets with the CEO and business presidents three to four times a year to go over the performance of each of the top 250 leaders. He asks how people are doing, how they can improve. People who are results oriented can’t wait because they can demonstrate what they’ve done. Those who have not performed well dread these reviews.” Cote describes his third strategy as achieving “great positions in good industries.” He couples that concept with the megatrend strategy to define which businesses Honeywell should pursue. “We continually look at the industry of each of our units, our position relative to peers and the ROI potential of the business,” he says. “One ingredient that makes a good industry is if it’s part of a megatrend — such as energy or avionics — that will help it grow.” That approach, says Cote, has led to the fine-tuning of Honeywell’s four business units. It has also meant engaging in more than 60 acquisitions and 44 divestitures since 2002.

Weathering the Recession
Honeywell based its preparation for the most recent economic downturn on Cote’s three basic strategies, and the results were powerful, says the CEO. “Analysts came to us in 2008, worried that this big recession was coming, and asked what we planned to do differently. My reaction was, ‘Not that much.’ ” Cote rattles off comparisons with the recent recession versus the 2001-’02 downturn: “This time our sales were down 15 percent in one year rather than 11 percent over two years, but instead of losing money, we made money, thanks to new efficiencies that were part of the Behaviors and Initiatives. Our free cash flow conversion was more than 150 percent this time, compared with less than 65 percent before. Instead of cutting R&D, we maintained our research budget and kept investing in our enablers and our global strategy.” That’s not to say Honeywell didn’t tighten its belt. The company cut approximately 6,000 employees (its global census now numbers about 122,000), compared with about 31,000 layoffs in 2001-’02, recalls James. But Honeywell also saved approximately $200 million by imposing across-the-board one- and two-week furloughs without pay and a freeze on merit raises. “We operated on the premise that when recovery comes, we’ll be glad to have the expertise still on board,” says James. “Honeywell is a much better company this cycle than in 2002,” says Morgan Stanley’s Davis. “The company is well positioned to benefit from attractive secular stories in energy efficiency, turbo, aerospace, and oil and gas.” Stating that industry peers currently devote an average of 2.3 percent of sales to R&D, compared with Honeywell’s 4.3 percent, Davis adds, “Honeywell is one of only a handful of industrial companies that have invested significantly in R&D over the past cycle.” Honeywell reports that it operates in more than 100 countries, and its tactics vary from simply selling products — as it does in most of the Middle East — and partnering through joint ventures — as it does in Africa — to engaging in the full spectrum of sales, manufacturing and R&D — as it does in many Asian locales. According to James, about half of Honeywell’s 2010 sales are occurring outside the U.S., up from 45 percent in 2005, with slightly more than a third of its employees now based in emerging markets. What’s more, a growing percentage of Honeywell’s 19,000 researchers and engineers work in developing countries, which has created a 24/7 global R&D cycle, says Cote. He points to new research facilities in Shanghai and Bangalore that focus on turbochargers, sensors, specialty materials and software. Asked what Honeywell will do differently in five years, Cote again says “Not much,” beyond emphasizing more exciting — and useful — research and becoming more global. He expects the future company to rest on the same three pillars that have defined his reign so far: the 12 Behaviors, the Five Initiatives and having “great positions in good industries.” Still, Cote says, the company will “be bigger and more profitable, generating even more cash.” That, the CEO asserts, is because Honeywell has positioned itself squarely in the middle of the world’s biggest trends.