Huntsman: The last great American industrialist
Jake Miller, Tom Champion and Gautam Mishra, WG'06
Issue date: 9/26/05 Section: News
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Since his days in the Nixon administration, Mr. Huntsman has collected commemorative cufflinks issued by the White House under each President. He now has 19 pairs, presented by every President, from Nixon to Clinton. The cufflinks, Mr. Huntsman explained, have become a reminder of time spent in the service of presidents, the United States Navy, and his business and family interests.
Jake Miller WJ: Jack Welch was on campus recently and remarked that he didn't see much value gained from public service. What are your views on the subject?
JMH: Jack's a personal friend. He threw me a party on my 50th birthday, but here he's absolutely wrong.
There are four legs to life that are critical
and they all help grow one's character and one's capacity to have fulfilled and meaningful life. This life is far more dramatic, critical, and important than anything monetary.
Family is first. Some type of family life is essential. It gives the great experience of parenthood and relationships.
The second is the vigorous pursuit of vocational interests, whatever they may be. One might run a custodial service but it must be the best, the most efficient, and the most productive. Compete against yourself. Do your best and to create value for yourself and your employer.
The third critical leg is public service. Take some time out to thank your country.
It's not good enough simply to pay taxes. In America we enjoy an economy and a republic thanks to public servants, most of whom volunteer their time and services, whether they are a member of the House or Senate or, in my case, an assistant to the president. I had the privilege to serve the country as a young Naval Gunnery Officer, but have also found it to be important to find other ways to serve the country. I tried to teach each of my children that they'll not only learn a great deal from public service, but it will allow them to give something back.
The fourth area is service to one's faith. One should serve some type of religious affiliation, whether part-time or full-time, or do something to show some essence of belief in the Supreme Being (or whatever one's religion proscribe). People must have some focus in that area for some period of their life.
Gautam Mishra WJ: Speaking of service, what motivated you to write your new book?
JMH: I started my autobiography 20 years ago. I went to Wharton on the Harold and William Zellerbach scholarship. My father was a schoolteacher in rural Idaho and I was very grateful to be one of the scholarship students from the West. They had a handicap system, and although I had mediocre grades, I had the right credentials to balance out, so I got in.
Over the years I've bought 34 businesses. Many of those I bought for no money at all with creative financing. I legitimately bought them this way because I didn't have the money. I didn't inherit anything and yet I didn't let the lack of money be a stumbling block. There are no real excuses, only those we put upon ourselves.
I purchased a lot of businesses and I paid for them later. I would get the company that sold it to me, whether it was Shell or Texaco, to carry most of the paper and then I'd borrow money from the bank. I was putting up one to three percent hard cash for businesses, most of which were in the industrial chemical sector. There are some very interesting stories in my autobiography that are good examples for how to build businesses with very little capital.
The book is complete but I don't think I'll see it fully published in my lifetime, due to some in-depth stories about the Nixon administration that have yet to be revealed. I sent the first ten chapters to publishers to gauge interest. Prentice Hall, which includes Wharton Publishing, came back saying, "Write a book on ethics, morality and business life. Write a few chapters and send it to us because your autobiography contains some interesting stories that overlap with ethics and playing
by the rules even though it's been a tough game."
I wrote the new book longhand, without computers or typewriters in about three to four weeks while on a fishing trip to Idaho. It's just a book about the way I've felt over the past 40 years dealing with the sharks and the good guys.
So that's how the book came into being. It was timely, in light of Enron, Tyco, and others. For me it was a quick write. I feel that the best books should come from your heart-from what you experienced. I wrote every word of the book and didn't have some ghost-writer alter my ideas by writing chapters for me. It's important for my grandchildren to someday read about their grandfather in his own words and about how he led his life in terms of ethics and challenges and playing by the rules.
Gautam Mishra, WJ: Are your grandchildren the audience you had in mind for the book?
JMH: Well, Wharton Publishing jumped on this thing. I think it's a book that will probably be well received in today's environment. Not just the corporate environment, but the environment of life, of families, of individuals and of organizations.
My grandchildren were kind of an afterthought. I'd much rather leave something that might be a guidepost 100, 200, 500 years from now. I can't imagine a society in which the ideas wouldn't apply.
Tom Champion, WJ: Could you discuss the formation of the Huntsman Chemical Company? What was the opportunity you saw and how did you align resources to exploit it?
JMH: I moved into selling eggs in LA after Wharton, which no one else in my class would think of doing. I entered the largest distributor of eggs in the state that sold 100 million egg cartons. I made Vice President within a year and then moved quickly to Executive VP. I took a very ordinary commodity business and set out to improve the company creatively. The only way I could see to improve a commodity business was through packaging, and although I knew nothing about plastics, I designed the first plastic egg carton. Historically, they were all just made from paper.
So my first plastics foray was while I was still a VP in my 20s. Fortunately, we decided to get into a joint venture with the Dow Chemical company because we had the market, the 100 million egg cartons, and they had the technical wherewithal to know how to make these cartons out of plastics facilities. We set up a 50-50 venture which they were their people running it and it was a disaster; so they approached me.
I brought in a new team of young guys who didn't know it couldn't be done and we turned it around and made a profit. When we saw what we could do on our own, without parent companies, I decided to mortgage my house and start the small business. I also noticed that there were all sorts of paper items that could be made out of plastic, such as plates, bowls, and dishes that were all made out of paper. So I made the first plates, bowls and dishes that you see today-they haven't changed much in design since.
In 1970, during the oil embargo, our partners cut us off. Suddenly, we had no more raw materials for manufacturing. At one point, it looked like we were going to have to shut down our plants, but I said "that's just not acceptable", got on a plane and flew all over the world figuring out various swaps and barter arrangements to get the necessary raw materials. Some of the arrangements were very sophisticated, involving creative financing and requiring the cooperation of banks. This perspective made me realize how global the petrochemical
industry really was.
Today, it's the world's preeminent industry because nearly everything we see, feel, touch and wear has some petrochemical component.
Everything from sulfur detergent, to paint, to tennis shoes is an oil derivative.
In many ways, the Company emerged out of crisis that year. You always find things out in a crisis, like who you are; it is during these times that you come face to face with yourself. You also find out what products you should pursue in the future. You never find this out during times of prosperity because you're never challenging yourself or realizing exactly what you can accomplish
Starting from the egg carton, every adversity gave us another new opportunity and we progressed. We started on a series of acquisitions, trying to be as creative as possible. One major acquisition was a company called Imperial Chemical (ICI) which had been founded in the early 1920's and had been a major contributor to the WWII war machine. We purchased a significant number of their assets in England along the North Sea. During this consolidation process we maintained great relationships with the government, worked hard on achieving our near-term goals, and things progressed.
Jake Miller WJ: As a fellow Latter-day Saint, I know that our church and other charitable projects demand a lot of your time. How do you balance your time? How do you manage a business, a large family, and all the other pursuits?
JMH: First, you never allow yourself to get rattled. You try to realize you can take things one day at a time-worry about tomorrow's issues when you get to them; I'm concentrating right now on what I have to do today. I don't even know what tomorrow's agenda is. I'm not one of these guys who have a five-year budget, or even a one-year budget, I have about a three-day budget.
I think now about my day yesterday-I was on three television shows-each task is a job that you try to do well. You can't let things accumulate
on you. You can take things one day at a time, in bite-size pieces, or you can let them chew you up.
I think it's extremely important that people channel their time effectively and get involved in charitable work. Whatever it may be, whether its cancer research [Mr. Huntsman has donated more than $100 million towards cancer research] or providing shelter for the homeless. We did just that in the 1988 Armenian earthquake after which tens of thousands were left homeless overnight. We brought in food from Turkey and Iran, a geography that was the site of genocide in 1918.
Anything is possible in life. The greatest lesson you can learn at an early age is that every time you get a 'no,' you really get a 'yes'. There are so many good things in life and you have to convince your mind, body, and spirit of this fact. There's always an avenue to achieve what you're trying to accomplish. Ultimately, we all determine the level of our own personal achievement. You can't have big ideas without the heart and body to follow through with them.
When the earthquake in Armenia took place I was told by the State Department that there was no way we would secure support from the Iranians. I said, "that's outrageous, these people are devastated and they're starving, we have to do everything in our power to bring food over the border." We were eventually able to get enough food to feed 250,000 people and the Iranians accomplished everything they said they would for us. I told the State Department it was a tragedy that we did not have person-to-person relationships established with the leaders of some of these countries. The world is full of honorable people, good people who want to be friends.
Gautam Mishra WJ: Speaking of barriers, I wanted to ask you about Huntsman Chemical and your operations in Thailand. Specifically, the decision of the company to leave the country instead of paying bribes. As a foreign company, Huntsman had the luxury of pulling out of Thailand and conducting business in other locations where Western commercial standards are more uniformly embraced. What of local entrepreneurs who don't have that capability-what does that person do in the context of your ethical paradigm?
JMH: That's a good question that I don't know I've thought through. How do you overcome many years of custom and commercial practice? In Thailand there have been several different regimes that have ruled the country and today there is a very fine government and a much more substantial rule of law. So, my idea on standards deals is that progress is possible in every country and that you have to establish a moral standard in order to have an example to aspire towards. But, this is the condition that maybe 60-70% of the world lives in. I've never been asked that question. What do you think?
Gautam Mishra WJ: In the past, it has happened that people I know in India have been asked to pay bribes to government
officials when paying their company income tax. So, in order to obey the law and fulfill their civic duty to pay taxes, these people have to fill the coffers of corrupt officials. In such a case people are often
forced to alter their own value systems to protect their business interests.
JMH: I don't view that as cheating-I don't believe these people did anything wrong in that situation. What they did was basic survival. Sometimes people can confuse that. So long as they didn't receive anything that they didn't properly deserve.
I think about my businesses without this license and I have no tolerance for impropriety or corruption. As I said, about two-thirds of the world operates under the circumstances that you describe. I have great respect for the challenges that these people run across and I wish them the greatest success.
Tom Champion WJ: Leadership is an important concept that is discussed in business school today. Could you describe a situation from your business career that really tested your leadership?
JMH: Leadership is all about handling and managing situations when they're at their very worst or when you're in crisis mode. The duty of a leader is to guide people and organizations through times of great stress. After I retired and my son Peter became CEO of Huntsman Chemical, gas prices increased from about $2.35 to about $10, a five-fold increase. All of a sudden, we were spending an additional $100 million in costs. Some of this cost increase was the result of fraud on the part of energy traders who were eventually found guilty of falsifying records and several companies were fined several hundreds of millions of dollars.
The company took a huge nosedive and we were strapped for cash far beyond anything we had ever known, combined with a global recession that hit our industry hard with overcapacity. People had had a great '90s and they had built big sites with 100 buildings, requiring four-to-five years to build-the recipe for a perfect storm. Our financial people, CFO and other so-called experts, didn't think we could survive. Our bonds had gone down, some as low to 10 cents on the dollar, our best to 40 cents. Anytime your bonds drop below 50 cents, insurance pays for bankruptcy. So all the experts gathered to take us through Chapter 11 bankruptcy. I had retired the year before so I wasn't involved with the day-to-day business, but I was still Chairman of the Board and the company still had my name on it.
I told the bankers and lawyers that my son would remain CEO, but that I was running this business and that "I want you to know that bankruptcy is not an option". I had 40-50 lawyer vultures telling me I didn't have a choice. I told them to pack their bags and move on. Looking back, I don't know if there's ever been any other company in America whose bonds traded so low who had then made it back from the brink. Clearly this crisis required determination and my background in negotiation with banks across the world. The company that we have now is far more valuable than it ever was before that crisis. Our debt is lower and we have a first-rate business, much better structured. The key is to surround
yourself with really good people in every area because you're not good at everything. I have top financial people. I love marketing and sales, but I would rather have technical people, R&D people and excellent production. To answer your question, leadership is only tested in a crisis.
This was a great example to my family and our 16,000 employees.
The keys to success in such situations are:
#1: Leadership
#2: Optimism
#3: Surrounding yourself with great people
#4 Strong, tight financial controls
#5: Keeping a very sharp eye on your customers; understanding who they are, and their quality control problems
#6: Stewardship of the environment; being
aware of your impact on the water, land, air, and neighbors, and knowing what you're giving back to that community.
Jake Miller, WJ: How is going to Wharton different today from when you were there?
JMH: Far more important than the classroom is the interplay and interaction between the students that go there and the relationships that they will enjoy. I have cherished my Wharton relationships my whole life, from my commercial bankers to investment bankers to my largest suppliers. Your school creates a very powerful network. That's far more important than any course you'll ever take. If folks like you, they pull you up the ladder of success.
Gautam Mishra WJ: As Chairman of the Board of Governors, what are the important areas for improvements for the Program?
JMH: The Board has come up with a series of areas for improvement, but without a doubt Wharton has evolved into the finest business institution in the world today.
I wish I were smart enough to know what the negatives are, but I think it's a great honor for young men and women from all over the world to be able to go there. We helped set up an international program because
we wanted to see a broader emphasis on the international arena simply, because the world of business is truly international. Whatever happens in our economy has a mushrooming effect in all of these other economies. It is folly to even think that the world today is a microcosm of the Southern United States or some part of Europe or wherever. Everything has a global impact. Wharton is pretty good at teaching that, but we can get better.
Quite frankly, they are two emerging nations where there is a growing opportunity. In America or Western Europe, there are no more personal entrepreneurs in [heavy] industry-I'm the last one-I'm not saying that self-servingly-there are some in the fields of biotech, high tech, hotels and services, but not in heavy industry. The industrial empires of Carnegie and Zellerbach of a hundred years ago don't exist anymore. It's another perfect storm that's come and gone.
Despite a hectic schedule that had Mr. Huntsman appearing on several major networks, he graciously took the time to speak with us and emphasize the importance of his connection with the Wharton. Thank you again Mr. Huntsman.