Perry's All Four One

Dec. 21, 2004
Engelhard Corp.'s chairman and CEO is assembling four operating units into a seamless, yet diversified organization.

Engelhard Corp.'s innovations are frequently visible but seldom noticed. The same cannot be said of its chairman and CEO Barry W. Perry and the relentless manner in which he is pursuing the integration of four operating units of the $5.1 billion firm into what he describes as a "surface and materials science company." It is a transformation nearly a decade in preparation. Starting in 1993 when he joined Engelhard, Perry began quietly working the issue of leveraging technologies across the company, first as a group vice president and later as Engelhard's president. A result was that, when Perry became chairman and CEO in January 2001, succeeding the retiring Orin Smith, "I had already started to lay the groundwork for leading the company differently," he says. Iselin, N.J.-based Engelhard, which today operates in 26 countries and employs 6,500 people, creates such technologies as catalysts that clean automotive exhaust, pigments that give cosmetics their sheen, and agricultural coatings that reduce insect damage. Historically, however, innovations had flowed separately from its business units -- environmental technologies, process technologies, appearance and performance technologies, and materials services. Perry regarded these structural silos and their ingrained individualism as an impediment to growth. "It was time for us to be able to articulate a strategy and direction that employees could embrace and rally around -- and that the external markets could also get excited about," he stresses. As he set about pulling down the silos, Perry was forceful and consistent in articulating his concept of a single company with core competencies in surface and materials science; technology-based and market-driven businesses; a passion for productivity; and a management mindset to leverage what Perry calls "commonalities" by sharing assets, knowledge and human resources. "There were people who would have criticized the company before, because when management spoke to Wall Street there was one message, a slightly different message in the media, and a third internally," Perry acknowledges. "Consistency is part of rebuilding credibility, and I was taking every opportunity -- a group at a plant site, sitting around a lunch table, the elevator ride -- to reinforce the message and provide the opportunity for people to debate where we were taking it." All indications are that Perry's message resonated both inside and outside the company. And he's been praised for his candor and credibility. "He's helping the organization see itself differently," says Mark Dresner, Engelhard's vice president for corporate communications. "Instead of seeing [Engelhard] as separate businesses, we're seeing that there is real commonality." Perry has done "a very good job at setting realistic expectations in terms of financial performance going forward," says Michael Sison, first vice president with McDonald Investments Inc., Cleveland. "He's done a very good job of explaining and helping [investors] understand the value-proposition that Engelhard in total has." Indeed, financial markets no longer see Engelhard as a catalyst business or a pigments business, but as a single enterprise that can leverage technology into a broadening array of markets, Perry says. "The fact that the company has technologies that are interchangeable has allowed them to develop new products in different areas using manufacturing or technological expertise," notes Sison. "I think it hits well with The Street. It's a message that's realistic, and, more importantly, we are seeing the results in their financial performance." For fiscal year 2001 Engelhard reported total return to shareholders of 38%, compared with a negative 12% for the S&P 500. Making One Of Four In 1997 as president and COO, Perry began to unite Engelhard. He started piecing together the company's disparate information-technology infrastructure, under which each business unit had developed its own platforms. "We laid out a five-year plan and started taking it one bite at a time and learning from each other," Perry says. He also began pulling together the company's people systems. Perry instituted what he calls "the draft," filling the best positions in the company with the best people available throughout Engelhard, regardless of their business-unit backgrounds. "That had never been done," Perry notes. "If you were an automotive-catalyst guy, that's what you stayed as forever, which meant [that] when top jobs opened, you went outside." In contrast, Perry began filling a talent pool of operating people who knew of and understood other businesses in the company. As president, Perry had headed a group of operating executives, and was a member of the management committee, which reported to the CEO and included executive staff. When he became CEO, Perry disbanded the committees. In their place, he created a single strategic leadership team so all managers could participate in decisions. "Now I had a core of operating people, who already knew what I meant when I said 'seamlessly integrated,' intermingled with the corporate group that had no clue," he quips. The clueless quickly got clued-in as Perry put in place a simpler, flatter management structure and did away with excess gatekeepers. Perry, who in 2001 made $1.93 million in salary and bonus and about $1.22 million in stock awards, also shifted the executive compensation system from a business-unit focus toward corporate targets, and he changed the bonus metrics to emphasize long-term value over short-term goals. "That's why things like return on working capital have improved significantly, which really adds to our total value to shareholders [and] to which the investment community has reacted positively," states Perry. Engelhard's return on invested capital (ROIC) was just 4.1% in 1997. In 2001, ROIC was 18.2%. Sticking To Competencies By recognizing that its core competency is in surface and materials science, Engelhard also has determined what it is not. And that has helped the company avoid costly capital forays into the unrewarding, indicates Perry. "If our competency is around surface and materials science, then they're not around metal bending," he emphasizes. Unlike the old Engelhard, which was driven by products and customers, and seemingly incapable of exploring and exploiting opportunities outside business-unit boundaries, the new Engelhard takes its "storehouse of technologies" and applies them to markets, Perry stresses. "The buggy-whip manufacturers were very customer-based and product-driven. They never saw the market change -- and that's the difference in being technology-based and market-driven." A market-driven focus also prioritizes R&D spending. Engelhard's R&D outlays were $84.3 million in 2001. "We have not had a case where we introduce new technology that has no market," Perry asserts. "In the past we may have been faulted for having great technological developments that were commercially insignificant -- and not recognizing that," he admits. "When you don't recognize [that] and tend to communicate [a development] as being significant -- and it isn't -- then you have a credibility problem with the marketplace, both your customers and Wall Street." Perry also stresses the diversification of Engelhard's market mix, a move that tends to lessen the impact of a downturn in a single industry on corporate performance and increases the chances of Engelhard being able to generate growth and earnings regardless of market cycles. For example, Engelhard's environmental group previously generated more than 90% of earnings from the auto industry. These days, about 75% of its earnings are auto-industry-based, as catalysts to help control emissions are finding their way into lawn-and-garden, utility and restaurant equipment. Now, "when we go through a downturn, like we did in 2001, we have a little more resiliency," says Perry. Engelhard's CEO spent 22 years with General Electric Co. But Perry hasn't tried to transplant GE practices. Rather, "what you transplant are the concepts you [have learned], the things [about] productivity, empowering workforces and management teams, and giving them the freedom to act and the accountability to act," he insists. It's paid off for Engelhard. For example, last year a cross-section of Engelhard business-unit managers redeployed assets at a paper-pigments plant to create additional production capacity to meet rising demand for a petroleum-refining product that improves gasoline yields. In the process the managers found opportunities to redeploy assets for Engelhard's materials-services unit, and they also streamlined the plant's existing technologies roster, targeting growth aspects of a maturing market. "We were able to meet two growth objectives -- one in the refining area and one in specialty materials area -- with no capital. And in the end, [we were able to] produce the same tons of product with a better growth profile and a higher margin mix," Perry says. "That was done by bringing three businesses together and focusing on how to be more productive as an enterprise, as opposed to 'How do I make my little sandbox better than your sandbox.' "

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