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C. Robert Powell: Changing Reichhold Chemicals

February 13, 1986

WHITE PLAINS, N.Y. (AP) _ After two years of spectacular success, C. Robert Powell has hit a snag in his ambitious plans for transforming sluggish Reichhold Chemicals Inc. into a premier high-technology, specialty chemicals company.

Powell was recruited in April 1982 to succeed the company’s sole leader for the previous 55 years, and earnings more than quintupled through 1984.

But in 1985, Reichhold recorded its first annual loss since its stock began publicly trading 30 years ago. Some analysts say they are skeptical about chances for renewed robust growth.

″I’ve got to admit that I feel a little like the general and his troops who find themselves surrounded,″ Powell, 58, recently told a business group. ″The troops ask, ‘What should we do?’

″There’s only one answer and that’s ’Attack.‴

Powell has been on the offensive since taking over as chairman from Henry Reichhold, who established the company in 1927 as a manufacturer of automobile paints and built it into an empire with nearly $1 billion in sales but lackluster profits.

Since Powell took the helm, the company has disposed of 18 businesses and acquired five others. Nearly a quarter of its jobs have been eliminated, with employment dropping to 4,200 from 5,500, mostly because of the divestitures.

A new corporate strategy has been adopted and Powell has been busy trying to fashion a striking change in corporate culture.

″Profit making was not a motivation under Henry Reichhold. Being big was. And I’ll tell you what he rewarded, he rewarded loyalty and he punished mistakes,″ Powell said. ″In contrast, we reward achievement. We do not punish mistakes. The only thing we punish is people not doing anything.″

Henry Reichhold was known for making all corporate decisions, down to setting the salaries of secretaries. Many of the company’s businesses were in highly competitive fields and little was spent on developing new products and new markets.

Powell is staking his reputation on participative management, which delegates decision-making to the lowest possible level in the company and rewards employees for their contributions to achieving the company’s goals and taking calculated risks.

″It has one great asset: It creates interesting and exciting jobs for the people, which in my belief is the single biggest motivator you can ever have for your people to outperform the competition,″ Powell said.

Winning converts at Reichhold Chemicals has not been easy.

Powell barred Henry Reichhold from returning to the company’s headquarters and never enlisted the full support of the other top officers, who eventually left.

″He had to take the company up from the dark ages,″ said Robert Reitzes, an analyst who follows the chemical industry for the investment firm of Mabon, Nugent & Co. ″I think the guy has done the right thing.″

Seated in an easy chair in front of his office fireplace, Powell reviewed his transition from being executive vice president of Diamond Shamrock Corp. and president of its industrials chemicals unit.

Reichhold Chemicals had been one of Powell’s customers during his 31 years at Diamond Shamrock, ″but I found out one thing in a hurry, you never really know what’s going on in a company until you work there,″ he said with a chuckle.

″They had a group of very nice people but there had been absolutely no money ever spent on training. I did not realize (that) in the 20th century you could have a Fortune 500 company like that. ...

″The biggest single thing that we had to teach people for the new culture was that change was going to be forever. That you had to give up on product lines that no longer could do what you wanted to and sell them and either start a new business or buy a new business. This was very hard to do. This company never sold anything in its entire history.″

Reichhold now concentrates on specialty chemicals, little known polymers that are components of widely used products.

Its chemicals go into paints and help them adhere to the walls of a home or stick to highways where they mark lane divisions. Other products are used to make fiberglass boats and showerstalls and to produce synthetic marble for bathroom fixtures and furniture. Reichhold specialty chemicals also allow packagers to seal cereal boxes or keep the label on a beer bottle.

The attraction of specialty chemicals to a manufacturer is that no other product is exactly alike and prices can be based more on the performance of the chemical than the cost of production. But competition remains stiff and other producers are constantly developing new products that may do the job better or cheaper.

As part of a five-year plan, Powell is seeking to improve productivity and enjoy big enough profit margins so that by 1987 earnings will be the equivalent of a 20 percent return on the average shareholder’s stake in the company.

Reichhold’s historical return on equity had hovered around 6 percent to 7 percent, about half the average for all industries and also below the less impressive performance of the chemical industry. At Reichhold, return on average shareholder’s equity rose to 10.8 percent in 1983 and 13.3 percent in 1984, before the loss last year.

″Our performance in 1985 was very disappointing; in fact I would have to say it was lousy,″ Powell said.

Reitzes and some other analysts are not confident Reichhold can quickly return to the rapid growth of Powell’s first two years at the helm.

After the initial gains under Powell, Wall Street expected miracles, Reitzes said.

The lesson learned from Reichhold is: ″You don’t see miracles overnight,″ said Reitzes. ″He (Powell) has got a lot to prove.″

Powell said the company’s goals can be achieved without miracles.

″I would say the only way we’ll fail is if our people lose faith and give up,″ he said. ″I think that’s my main job, to see that doesn’t happen.″

Reichhold recently took a $28 million after-tax writedown against its earnings to further scale down the company as sluggish demand left plants running well below capacity. That resulted in a $28.4 million loss for 1985.

A strong dollar hurt some of Reichhold’s major customers, and a staff trying to adjust to the heady pace of divestitures and acquisitions had difficulty coping with changing markets.

″In retrospect, I think we tried to do more than we had the talent to do it with,″ Powell said. ″In short, we didn’t have enough leaders.″

He remains optimistic, though.

″I think you always have to have your people working to make things better. If you don’t have that, you get complacent and you plateau,″ he said. ″The trouble with this world is when you plateau you end up going down.″

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