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DEAVENPORT: STILL CHARGING AHEAD Eastman's CEO reflects on a long career and how he will spend the rest of it University with a bachelor's degree in chemical engineering. He held a number of managerial positions before bearnest W. Deavenport Jr. has ac- ing named president of thefirm'sCarocomplished more in his many lina Eastman division in 1982. Three years in the chemical industry years later, he was named assistant genthan most of his colleagues and compet- eral manager of the chemical division itors. But to hear Deavenport tell it, one and vice president of Eastman Kodak. of his biggest challenges still lies ahead. Then, in 1989, he became president of This week at a dinner in New York Eastman Chemical and group vice presCity, Deavenport, the chairman and ident of Kodak. chief executive officer of Eastman When Deavenport took over as presiChemical, will receive the International dent, Eastman was a multi-billion-dollar Palladium Medal awarded by the Amer- company producing more than 400 ican Section of the Société de Chimie Industrielle. The award, which has been presented to 20 chemical industry leaders since it was inaugurated in 1958, recognizes Deavenport's "distinguished contributions to the chemical industry." For his part, Deavenport says the contribution he measures is the value Eastman provides to itsfivemajor constituencies or "stakeholders"—its customers, employees, suppliers, the public, and investors. Deavenport is satisfied with the value Eastman has provided to the first four groups since he assumed the company's helm in 1989, but is disappointed that the investors who have owned Eastman since it went public at the beginning of 1994 haven't gotten their full due. Deavenport's exemplary service to customers, employees, and suppliers becomes clear upon examination products for some 7,000 customers of the transformation that occurred worldwide. But in many ways it was still within Eastman during the 1990s. the chemical division of Kodak, serving Eastman Chemical was established in its parent and its other customers with a 1920 by George Eastman, the founder of production and product sale mind-set. Eastman Kodak, to supply critical chemiColleagues say Deavenport quickly cals to his fast-growingfilmand photogra- saw the shortcomings to this approach phy business. Over the next seven de- and began to make the necessary struccades, the chemical company grew into a tural changes, ones that would eventual$4.7 billion enterprise making products ly benefit both customers and suppliers. for Kodak and, increasingly, for other These steps included Eastman's landcustomers around the globe. mark shift in 1991 to an organization Deavenport joined Eastman in 1960 centered on market- and customerafter graduating from Mississippi State oriented business groups. Michael McCoy C&EN Northeast News Bureau
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Although Deavenport couldn't predict the spin-off that would come a few years later, his colleagues say he realized Eastman would not remain Kodak's chemicals division forever, and so started to prepare the company and its employees for some kind of change. As a result, when the spin-off decision was made, Eastman was prepared for life on its own in a way it wouldn't have been before Deavenport took charge. Respect for how Deavenport navigated the company through the spin-off and the chemical industry's turbulent years since is almost palpable in Kingsport, Tenn., the company's headquarters and the site of its largest plant—in fact, one of the largest chemical plants in the U.S. Indeed, all of Eastman's major U.S. plants are in small towns like Kingsport, creating a long-term company-employee bond that's rare in the business world today. Deavenport clearly appreciates this bond and is proud of the fact that Eastman has come halfway through a four-year, $500 million cost-cutting program without the layoffs that, he says, seem to characterize such efforts at many companies today. By properly managing human resources, he notes, Eastman has been able to reduce its "labor bill"—employees, contractors, and all others working for the company—from 24,000 in 1990 to about 17,500 this year, gradually and without massive layoffs. "We didn't wake up one morning and decide we have to getridof 2,000 or 3,000 people," he says. Eastman employees exceeded the cost reduction program's annual target—$100 million—by more than $50 million in each of its first two years. The target for 1999 and 2000 is a more ambitious $150 million a year, but Deavenport is confident it will get done. "Fortunately, we haven't run out of ways to cut costs," he says, attributing much of the gain to new information technology. After employees, customers, and suppliers, the public is the next big group to which Deavenport—and by extension his company and his industry— tries to provide value. Here again, he believes the track record of service is good, but he's also aware that much of the public may not agree. If the public doesn't appreciate the chemical industry, though, it's not for lack of trying on Deavenport's part. He has long been involved with the Chemical Manufacturers Association (CMA)— MAY 17,1999 C&EN
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including a year as chairman—and is on the board of the American Plastics Council as well. Deavenport is proud of the fact that he was a member of the CMA committee that first embraced the Responsible Care Code of Ethics a decade ago. He says Responsible Care has helped end the slide in the public's perception of the industry and its ability to safely manufacture and transport its products. But rather than an upturn in perception, he now sees a vacuum of sorts that is waiting to be filled with a more positive view of the industry—the view "that it does enhance our standard of living and quality of life." Deavenport notes that in the plant communities where Eastman is known and understood, the company is viewed favorably by more than 80% of people surveyed, while among the general public the figure is closer to 20%. He maintains that the public's opinion won't rise without a concurrent rise in its scientific literacy—a large task requiring a concerted effort to improve knowledge and skills in math, the sciences, and critical thinking. Companies, he says, need to
get involved in the school system in their own communities. Another profile-raising technique that Deavenport advocates is a sustained campaign of promotional advertising, although he acknowledges that others in the industry are skeptical of this approach. "I'm at odds with some of my colleagues in believing there's a value infillingthat vacuum," he says. "I'm a proponent based on my experience with the American Plastics Council. I know this kind of effort will pay off in spades later." Despite a long list of accomplishments in a long career with Eastman, Deavenport, 61, isn't resting. In fact, he thinks he has a lot more to do before he reaches the company's mandatory retirement age of 65. This is because, after a banner year in 1995, Eastman hasn't been providing adequate value to shareholders. Sales and profits have been slipping slowly, and the outlook for 1999 isn't much better—the company's first-quarter sales were down 11% against the previous year, and profits were less than half
what they were in the year-ago quarter (seepage 18). Deavenport thinks the chemical industry business cycle has reached the bottom and should start to turn up soon. "You've got to believe that the remainder of 1999 will be modestly better than the beginning," he says. But at the same time, he's not waiting for an improvement in business to buoy Eastman's fortunes and has set the company on a program of cash generation for 1999. "If earnings aren't going to provide cash for us this year, then we need to focus on other sources," Deavenport says. Eastman will be targeting capital expenditures, working capital, and asset sales to raise cash for its shareholders. Capital spending, for one, will drop from $500 million last year to $360 million or less this year, Deavenport says. This is possible partly because Eastman has largely completed the globalization effort begun after going public in 1994. In addition, Eastman is deferring some previously scheduled capital spending and finding ways to do more with less.
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For example, Deavenport says the company canceled a tackifying resin expansion at its Longview, Texas, plant when it found it could get the capacity it needed from its existing facility. And it recently set aside plans for a big new epoxybutene facility when it decided to forego larger volume markets in favor of smaller but higher margin ones. Looking further out, Deavenport wants to reduce Eastman's exposure to commodity plastics like polyethylene and polyethylene terephthalate and to focus on those "sweet spot" businesses that are higher margin, less cyclical, and require less capital investment. According to Deavenport, the Eastman businesses that live up to this standard are coatings, inks, and resins; specialty plastics; fine chemicals; and industrial intermediates. His determination to expand the sweet spots became apparent three weeks ago when Eastman announced its intention to acquire Lawter International, a Pleasant Prairie, Wis.-based manufacturer of specialty products for the inks and coatings market. The pur-
Eastman's plastics problem Eastman Chemical pioneered the production of polyethylene terephthalate (PET) for the packaging market and is now the world's largest producer of the fast-growing plastic. Rather than being a selling point, though, this leading role has become something of a millstone around the neck of the company and its chief executive officer, Earnest W. Deavenport Jr. PET and commodity polyethylene represent almost a quarter of Eastman's sales, and the company has lost money in this segment in each of the past three years. PET expands at double-digit rates almost every year, but industry capacity has been growing even faster, keeping prices low and competition high. Seeking to reduce Eastman's exposure to PET, Deavenport and other Eastman executives began last year to explore ways to reposition the business through a sale, joint venture, or some kind of financial arrangement. In the end, though, the company didn't take action, and found itself being criticized in the financial community.
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Deavenport counters that he could have sold the business but didn't, because a sale would have destroyed value for shareholders; joint ventures were weighed, but they had antitrust or other insurmountable problems. Eastman continues to look for ways to improve PET's earnings reliability, but rather than getting out, Deavenport says he sees more value in "staying the course, remaining the industry leader, and looking at our opportunities in late 1 9 9 9 or 2 0 0 0 . " Eastman is taking a different approach with its commodity polyethylene business. Here, Deavenport says, the company is actively shifting its product mix toward more specialized products, such as the Hifor highperformance film resins that are based on new Eastman technology. Deavenport believes Eastman can slip into the specialty polyethylene market b e c a u s e , unlike in PET, "we're not the big gorilla in this business." The company has moved about half its polyethylene output to new grades and wants to shift the mix even further.
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palladium chase, for about $500 million, will add more than $200 million in sales and in crease Eastman's presence in the coat ings, inks, resins, and adhesives mar kets to about $1 billion annually. Another effort to enlarge a high-mar gin business came in January when Eastman's fine chemicals unit an nounced that it will build a facility in Batesville, Ark., to produce custom in termediates and bulk actives for the pharmaceutical industry. Deavenport acknowledges that a fine chemicals opportunity exists in Genencor, the industrial enzyme producer it owns 50-50 with Finland's Cultor. Cultor has been acquired by fellow Finnish firm Danisco, and it's possible that Genencor won't be important to the new food-ingredient and packagingfirm.It is important, however, to Eastman. "We look at Genencor as something that fits with our strategy long term," Deaven port says. If the bid for Lawter is successful, it will be the largest acquisition made by Eastman, and the first of a publicly held company, since the 1994 spin-off. How ever, Deavenport says the relative dearth of deals isn't for lack of interest. "We keep our ears to the ground and do our homework," he says. "We must con tinue to look at, evaluate, and do deals when the deal is right and the time is right." And while he claims to feel no pres sure to make a blockbuster move for Eastman before he retires, Deavenport does acknowledge that there is a certain amount of pressure on midsized compa nies such as Eastman to grow larger. "There is real value in being large," he says. "You have morefinancialresources, you can swing bigger deals, you have more businesses to balance each other. I believe that in the next several years you will see a lot of companies with sales that are anywherefrom$500 million to $6 bil lion or $7 billion look at the Dows and DuPonts of the world and say, We need to get together.'" Even in these unsettled times, Deav enport says he still enjoys going to work each day in the chemical industry. 'The fact that we are all each other's custom ers, suppliers, and competitors breeds a respect and integrity that you may not find in other industries," he says. "It was more fun in 1995 when our employees got 30% bonuses, but there are also op portunities at the bottom of the cycle and challenges to get the best of your people and their skills."^
