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Dow and DuPont strive to find the right chemistry

January 13, 2016
Chemical Value Chain

A feat of corporate and fiscal engineering, Dow Chemical Co. and DuPont Co.’s planned megamerger hinges on finding the right chemistry with about 100,000 employees.

Senior leaders who have spent decades at the two giants poised to be dismantled are coping with upended career prospects and attempting to keep their staff​ focused amid the merger of two companies with a combined value of $103 billion.

At the same time, they could find themselves in line for plum positions when the new company—DowDuPont—eventually separates the combined businesses into three units focused on agriculture, industrial materials and specialty products expected within three years.

Recruiters, coaches and executives who have weathered deals and integrations say it is a tough process.

“On one side of your mind you’re saying, ‘Tomorrow will be like today.’ You go about and do your job,” says Robert Lynn Oakes, who worked for Rohm & Haas Co. when Dow acquired the chemical maker in 2009. He stayed for three years afterward before leaving in 2012 because he was told he would have to relocate. “In the back of your mind, you’re looking for opportunities,” he said.

Executives aim to close the deal by year’s end and staffing changes are likely to follow. Corporate leaders have said they plan to eliminate about $3 billion in annual costs before spinning off the companies.

The companies, which together employ about 100,000 scientists, salesmen, factory workers and other staff, already have taken steps to shed thousands of jobs, separate from the deal.

The moves also could put many managers in play.

John Touey, a principal with Radnor, Penn.-based executive search firm Salveson Stetson Group Inc., said executives typically become more receptive to outside recruiters 90 to 120 days after an announcement—a time when top leaders are still closing the deal, but can’t yet execute detailed integration planning, he said.

“When an organization can’t articulate what this executive’s place is going to be in the new organization, the more of a flight risk they become,” Mr. Touey said.

Edward Breen, DuPont’s chairman and chief executive, said in an interview that he has spoken extensively with senior-level managers at DuPont since the deal was announced in December, stressing the scale and heft of the spin-off companies and instructing senior officials to spread the word among staff in an effort to reassure and motivate employees.

He also is dispatching lieutenants to DuPont facilities around the world to detail plans and field employees’ questions.

“The human capital side is the most important part of this,” said Mr. Breen, who will be the CEO of DowDuPont.

At Dow, managers have grown accustomed to change following a decade in which the company spun off some businesses and bought others, said CEO Andrew Liveris. Still, he acknowledged that portraying deals as “a win-win” for staff is hard.

“There’s a lot of shakiness that goes on in this very early period,” he said, adding that the company “lost a lot of top players” from Rohm & Haas during the 2009 acquisition.

“No one wants their cheese moved,” said Mr. Liveris, who will be executive chairman of the combined company. “No one wants instability.”

Privately, some managers at both companies say they’re feeling upbeat about the merger-to-split plan. Yet others have begun exploring job opportunities elsewhere, say people familiar with the matter.

Their options appear limited, though. The slumping farm economy and slowing growth in overseas markets such as China and Brazil mean that competitors are feeling pain. Monsanto Co. plans to cut 16% of its global workforce, while 3M Co. last year outlined plans to lay off about 1.7% of its workforce.

Mr. Breen, who separated multiple businesses at Tyco International Ltd. during his time as CEO there from July 2002 until Sept. 2012, has said combining the two chemical giants’ businesses will benefit managers—after all, there will be three C-suites to fill, not one.

“When you lay that out for employees, that’s very strong and powerful,” he said.

Mr. Liveris said he also is preaching focus and calm to keep workers on task, especially those whose jobs likely won’t be affected by the merger.

“The greatest risk during this period of uncertainty is you drop the ball on existing business,” Mr. Liveris said. Bosses will tell workers who will retain their jobs, “You’re in a normal place. Please press on,” he said. Both Dow and DuPont have set aside sums for retention bonuses.

To gear up executives to lead the spinoffs, Mr. Breen said he and Mr. Liveris will include them in investment and strategy decisions well ahead of the breakup, allowing them to outline plans and take questions on the merged company’s earnings calls.

At DuPont, Mr. Breen is using uncertainty to motivate his managers, just as he did at Tyco, telling those in line to lead spinoffs that their future jobs depend on their teams’ performance during the transition.

“When I did this at Tyco, the excitement of these management teams…was so strong, they were working day and night,” Mr. Breen said. Leaders for the planned spinoff units are expected to be chosen at least six months ahead of the separation.

Annual executive turnover at merged companies have averaged double the normal rate for nearly a decade following deals, according to research by Jeffrey Krug, dean of the business school at Bloomsburg University of Pennsylvania. “The greater degree to which you integrate assets, the higher the rates of turnover, because integration is disruptive,” he said. The chemical giants’ merger-to-spinoff plan, expected to take up to three years, could result in even higher turnover, Mr. Krug added.

Mr. Oakes, the former Rohm & Haas and Dow employee, said the earlier merger process triggered a “chain reaction of anxiety” among staff. While he kept his direct reports on task by setting deadlines and advancing projects, Mr. Oakes said he also stayed in touch with recruiters and contacts, just in case. He switched roles several times before leaving in 2012.

At Pep Boys—Manny, Moe & Jack the work climate changed after the auto parts retailer and servicer announced it was up for sale in the fall, according to Jim Flanagan, the company’s human-resources chief.

In a typical month, about four of the company’s 470 corporate employees would leave; now about 14 are departing each month, Mr. Flanagan said. The​ chain ​is ​proceeding​ with a sale to investment firm Icahn Enterprises.
Some employees at the Philadelphia-based company have ramped up networking on LinkedIn and are meeting with recruiters, according to Mr. Flanagan. Meanwhile, it has been hard to muster enthusiasm for​some new projects, he observed.

Knowing Pep Boys’ independent days are numbered, Mr. Flanagan said, “takes all that energy and creativity out of the job.”

By Jacob Bunge and Rachel Feintzeig

Source: Wall Street Journal

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