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Monday, August 18, 2008

Dow CEO Must Foster Spirit of Innovation

Absorbing High-Tech Rohm & Haas to Require Changes in Company's More Stolid Culture

Dow Chemical Co.'s chief executive, Andrew Liveris, Thursday was exactly where he likes to be: in the limelight, announcing a multibillion-dollar deal and talking up his grand plan to turn his staid company into a hot-shot high-tech innovation machine.

How realistic this is remains to be seen. Today, Dow Chemical still makes three-quarters of its revenue in commodity-like products, spinning hydrocarbons into plastics and chemicals with little glamour and long names. And the company faces a huge challenge from the soaring costs of natural gas and oil, which are the building blocks of many of its products.

But Dow's $15.3 billion deal to acquire Rohm & Haas Co., which produces higher-margin specialty chemicals, is a step down the path Mr. Liveris has been promising since he became chief executive officer in late 2004.

A self-described "chemistry nerd," Mr. Liveris sees a day when Dow scientists will create must-have products craved by customers around the world, just as it did back in the 1960s, he says. Those products included Handi-Wrap and Ziploc bags. "You'll buy them because they have value to you and you'll pay the price," he says.

There have already been some bumps along the way for Mr. Liveris, 54 years old, a voluble Australian with a hard-charging style. He has spent his whole career at Dow, mostly in Asia.

Last year, after he had spent weeks denying rumors out of London that Dow was on the block, he discovered that two Dow executives were trying to sell the company out from under him. Their plan was to break up Dow, splitting the commodity and specialty businesses.

He fired them; they sued. Although Mr. Liveris ultimately prevailed, both at the company and in the courts, the incident raised questions about his strategy.

Dow is one of the few companies that covers the chemical waterfront, moving into specialized products while staying in the basics business, where it faces accelerating competition from the energy-rich Middle East.

Dow's response has been to try to unload some of those basic businesses into joint ventures. Before the end of the year, the company hopes to close on a deal to sell a 50% stake in several plants to Kuwait Petroleum Corp. for $9.5 billion. (Mr. Liveris describes the day he announced that deal, on live television, as his best at Dow -- until Thursday, when he says he got a standing ovation from Dow employees.)

That Kuwaiti cash has been burning a figurative hole in Mr. Liveris's pockets, and Wall Street has been speculating for months that Dow would buy a rival and complaining when it didn't.

Thursday's deal takes care of that issue, though it raises other concerns. Dow's last major acquisition, of Union Carbide in 2001, proved hard to digest and ended up pushing the company more heavily into the commodities business it is now trying to play down.

This time around, Dow will have to absorb its new holdings while at the same time trying to foster a new spirit of innovation in what has been, in recent years, a more stolid corporate culture.

Coaxing a high-tech butterfly from a commodity-chemical cocoon is far from easy, experts and competitors say. "It's going to be death-defying, may be enormously frustrating -- and may fail," says Howard M. Anderson, a professor at the Sloan School of Management at Massachusetts Institute of Technology.

Dow also has had its share of pollution problems, and the Union Carbide deal linked it with the deadly 1984 chemical leak in Bhopal, India -- which remains an environmental, political and humanitarian issue to this day.

Mr. Liveris complains that, in general, Dow has been judged unfairly, and he has gone on the offensive. Since becoming CEO, he has been unusually outspoken, pressuring Washington about the need for new energy and industrial policies, announcing sweeping price increases, and generally trying to revamp Dow's public image.

"I admire Andrew's willingness to step up and talk about issues that are important," says Barbara Hackman Franklin, a longtime Dow director.

Despite his best efforts, Mr. Liveris is little-known to Americans. Back in Australia, however, he has a higher profile, and in early 2007 he was rumored to be angling to head that nation's biggest company, BHP Billiton.

Was that true? "Capital N, capital O, exclamation point, exclamation point," Mr. Liveris says. "I really am very committed to changing this company to relive its glory years."

By: Leslie Eaton and Ana Campoy
Wall Street Journal; July 11, 2008