To understand the kind of company that dallas-based Celanese Corporation is, you have to understand a little something about acetic acid. In chemistry, acetic acid looks like this: CH3COOH. This represents the double-bonding of an oxygen atom to carbon, which is single-bonded to both CH3 and OH. If that doesn’t clear up the meaning for you, try this: Standard, household white vinegar is a diluted version of pure acetic acid.
 |
| BINDED BY SCIENCE: As a boy, Celanese CEO Dave Weidman was one of the top 40 science students in the nation. Now, he heads one of the largest chemical companies in the world. |
So, now you’re wondering: How does a company whose major product line is acetyls—products made from acetic acids and their ilk—make $6.7 billion in revenue a year off of stuff used to make vinegar? Well, to understand that, you’ve got to know more about acetic acid. For instance, you’ve got to know that you can’t make a plastic bottle without it, that it’s a key ingredient in wood glue, and that the paint on your walls likely contains acetyls, too. Perhaps you have no idea how in the wide, wide world of sports the stuff that makes vinegar can possibly be the same stuff that’s in your house paint. That’s okay. Because if you only know that acetic acid and other acids like it—known collectively as acetyls—are the building blocks of thousands of consumer products, then you’ll begin to understand Celanese.
Celanese, you see, is the world’s largest manufacturer of acetyls. And that’s just one aspect of the company’s business. The company has manufacturing facilities scattered all over the globe, deriving a quarter of its revenue from Asia, a third from Europe, and the remainder from North America. It is divided into four distinct business units. The chemical products unit makes vinyl acetate, polyvinyl alcohol, and that smelly acetic acid that puts the vinegar in your vinaigrette. The technical polymers unit, called Ticona, makes chemicals that are used to create high-end plastics, the kind of stuff that your Blackberry is made from. The food products unit, called Nutrinova, makes preservatives and sweeteners like Sunett, the thing that puts the zero-calorie in Coke Zero. And the acetate products unit (not to be confused with the unit that makes acetic acid) makes acetate tow. Made from wood-pulp, acetate tow is a key ingredient in cigarette filters.
If all of that sounds ridiculously complicated, it absolutely is. So you’ve got to figure that Dave Weidman’s job as chairman and chief executive officer of Celanese is pretty complicated. Not only does he have to lead a management team that is spread out all over the globe, he has to, you know, understand all that polymer and sorbate and acetate and polyethylene stuff. Luckily, he does. As a kid, Weidman, now 52, was named one of the top 40 science students in the U.S., and he eventually earned a degree in chemical engineering from Brigham Young University. Even so, Weidman shunned the lab coat for a suit jacket, getting his MBA from Michigan and going to work first as a business analyst, not a chemist, for American Cyanamid Company in Wayne, N.J. “Even though I majored in chemical engineering, I always knew I wanted to pursue the business side of it rather than the technology side,” Weidman says from Celanese’s world headquarters, a bland office building just off LBJ Freeway at Luna Road.
Judging by Weidman’s tenure at the helm of Celanese, he made the right call. After 20 years of working in various executive capacities for other chemical companies, Weidman was hired by AG Celanese in 2000 to head its chemicals unit, which today produces some 60 percent of Celanese’s revenue. At the time, the company had just spun off from Hoechst, a German chemical conglomerate that had let Celanese’s businesses weaken in the years prior to the spin-off. “Hoechst had decided they wanted to become strictly a life sciences company,” Weidman says. “Anything that was not a life sciences company was second-tier. So for a long time, Celanese had been neglected within the Hoechst portfolio.”
With business sputtering, Celanese became an attractive takeover target, and in 2004, U.S.-based private equity firm Blackstone Group bought Celanese outright for $650 million. It quickly named Weidman CEO and relocated the company to Dallas—a move intended both to get management closer to the bulk of Celanese’s employees, most of whom work in North America, and to position Celanese for a U.S. initial public offering.
THE TAKEAWAY |
1. Businesses, much like chemical equations, require balance. 2. Math is at the square root of change. 3. Being a global company means waking up very early every morning. |
In the year before its 2005 IPO, Celanese posted $5.06 billion in revenue and a $175 million net loss. But under an aggressive restructuring campaign, Weidman led a speedy turnaround. In 2006, Celanese had increased revenue by more than $1.5 billion, to $6.65 billion, and had swung a net loss to net earnings of $406 million. At the same time, Celanese restructured nearly $4 billion in debt; shed more than $1 billion in underperforming businesses; acquired about the same in new business operations, including new plants in China; and bought back some $400 million worth of its own shares. Meanwhile, Blackstone fully divested its ownership—accumulating a tidy profit of more than $3 billion in the process.
So how, exactly, does one take a sluggish German chemical concern, move it to the U.S., revitalize operations, expand the global presence, and double the stock price, all in the span of a couple of years? Well, to hear Weidman tell it, it all has something to do with acetic acid and the like, but mostly it has to do not with chemical compounds, but with business elements. Four business elements, to be exact.
1. Chemical equations have to balance. Business equations can balance, too.
In his earliest assessment as the head of Celanese in 2004, while still sitting in his former office in Germany, Weidman determined that the fundamentals of Celanese’s business were solid, but that the company needed “contemporary management practices” to excel. So he put together a group of competitive companies that would serve as benchmarks for Celanese, the $49 billion Dow Chemical and $7.4 billion Eastman Chemicals among them. The benchmarks were disturbing. “In many areas we were in the bottom quartile against the peer group, and in some cases we actually defined the bottom,” Weidman says. “But I recognized that the businesses—the technology and the franchises—articulated a stronger case than the financial numbers. So it was a matter of then trying to close the gap. One of the first key things we did was just point out how much more we were entitled to be as a company.
“We kept talking about that,” he adds. “We talked about it in our monthly meetings, in our quarterly meetings, and before long our organization grasped on to that. Instead of rationalizing poor performance, people started to accept the fact that change was essential.”
Programs were put in place to boost productivity, and Weidman started using the cash generated by Celanese’s January 2005 IPO to buy new subsidiaries, picking up chemical companies from Canada to the Netherlands.
Since the IPO, Celanese has acquired $1.8 billion worth of new business revenue. But, it has shed an equal amount of old business—selling off plants and product lines and subsidiary firms from Germany to Bay City, Texas. “We’ve sold about a third of the company off,” Weidman says. “We’ve exchanged about the same amount of revenue, but we’ve bought in areas where we were already strong.”
Still, the equation doesn’t exactly balance. While Celanese swapped an even amount of revenue, it cut jobs in the process. Before leaving Germany, 10,700 people worked for the company worldwide. Today, a leaner workforce of 8,900 is producing 31 percent more in annual revenues.
2. The 100 is like that movie, 300, only with fewer Spartans and less violence.
Jumpstarting Celanese required more than an influx of cash and a new set of offices on Luna Road. It also required a change in the entire company’s attitude toward growth. Not surprisingly, Weidman’s strategy for changing minds is based in his scientific background.
“I’m an engineer, so I picked up a simple equation somewhere years ago that I like,” he says. “ If you are in a community or a company and you need to drive change rapidly, you can’t do it alone. You need a group of people who are totally with you. How large does that group have to be? Well, the equation says that you take the size of the group that needs to change, and then you calculate the square root of that group. The square root is the size of the leadership team that you need to lead your revolution.”
At Celanese, that math works like this: When Weidman took over, he had about 10,000 employees. The square root of that is 100. So, Weidman set out to make sure he had 100 leaders dispersed throughout the company who were fully supportive of the moves to remake Celanese, no matter how difficult.
| CEO SNAPSHOT DAVE WEIDMAN, chairman and CEO, Celanese Corp. |
| BIRTHPLACE: Tremonton, Utah MULTIPLE DEGREES: Bachelor of Science, Brigham Young University, 1978. MBA, University of Michigan, 1980. FIRST JOB: Business development analyst for American Cyanamid Co. The gig would evolve over the next 14 years, with Weidman holding various roles in everything from business development to specialty chemicals to sales and marketing. In 1990 he got his first shot at running a division, serving as general manager of the company’s fibers unit. HE KNOWS HIS FORMULAS: As a kid, was named one of the top 40 science students in the country thanks to a passionate pursuit of the subject. Why chemistry and science? “It wasn’t to impress the girls, I’ll tell you that,” Weidman says. He dreamily imagines a high school girl’s choices, “‘Let’s see, I can go out with the guy who loves science or go out with the quarterback. Hmm.’ That’s a pretty easy call. But during my high school years, there were two things I really loved to do. One was science and technology. The other was to be involved in leadership. I was involved in national organizations and was elected to some national offices when I was a junior and senior.” Appropriately, today he is chairman of the Society of Chemical Industry. MOST FORMATIVE BUSINESS EXPERIENCE: The six years he spent at Allied Signal, from 1994 until Celanese hired him. At Allied Signal, Weidman worked under Larry Bossidy, a disciple of the Six Sigma school of management that is now employed by Celanese. “Six Sigma empowers an organization to drive change based on facts and data and not on the way things have been done historically,” Weidman says. “So we empower our people to make change based on facts. We look at the facts and the data, and we will let a gang of facts kill a good concept if it needs to be killed. We frequently talk about killing tribal knowledge—about killing the things where we say, ‘Well, we’ve always done it this way.’” |
“That’s your core group,” Weidman says. “So you have to take that core group and you have to support them. A lot of times when change drags down, it’s when you failed to recognize your core group, or you tried to make change a democratic process. But change is not a democratic process. It’s not a process of consensus. You need to move forward as a revolutionary.”
With that attitude, it’s not a far leap to suggest that Celanese works today like a game of Risk. The approximately 100 members of Weidman’s core group are dispatched to the various parts of the globe where Celanese has operations (see opposite page). Sometimes that means taking a top person out of, say, Dallas, and dropping them into, say, Nanjing City, China, where Celanese has built an acetic acid plant. Or maybe to Shanghai, where, six months ago, Celanese relocated a key business unit that had been at its Dallas headquarters. “To take some of your best people and say, ‘You’re off to China, go make it successful,’ is not an easy thing to do,” Weidman admits. “But we are committed to China.”
Those leaders are also charged with recruiting new revolutionaries, be they in Nanjing City or elsewhere. That, too, can be a challenge. “We realize this culture of change will sound like Nirvana to some people and sound like hell to others. There is a leap of faith when you begin doing this. You have to fight comfort and entropy. But we’ve found it is also a great way to build bench strength. People here know that there will be an opportunity for movement.”
3. Speaking a lot of languages is good.
Analysts have recently expressed concern about the global chemicals market and the potential for growth for most large chemical companies. Yet, Celanese is still well-regarded among many market watchers. That has something to do with the company’s worldwide reach and something to do with a plan for growth that Weidman has laid out in recent months—a plan that involves formaldehyde, anhydride, and emulsions, as well as some things that actually make sense.
First, the global presence. Despite its Dallas headquarters, about two-thirds of Celanese’s business comes from outside the U.S. A quarter of net sales are now derived from Asia. And Weidman plans to continue growth overseas because that’s where the demand is. Chemicals, it turns out, can be volatile and are best made close to where they’ll be used. So, a carmaker in Japan who wants to use Ticona’s polymers to fashion a fancy, plastic dashboard may prefer to have a polymer plant nearby. “We are a company that manufactures products that are used by manufacturing companies,” Weidman explains. “So our products seldom will be seen on the retail shelf. But we do make the products that end up in manufactured goods. You cannot get into a car or go anyplace or do anything that doesn’t involve our chemicals. A Blackberry, a cell phone, your car, they all involve chemicals that we manufacture—high-performance, engineered plastics. So as manufacturing expands into India or Vietnam or China, we follow that market and we follow our customers on the basis of where they go.”
That means Celanese has to hire management that understands worldwide markets, yet can stay true to the company’s core mission. “We have a common set of values,” Weidman says. “But we also recognize that those values and our corporate culture probably have a different accent in China, Germany, Spain, or Mexico. So we work hard to hire executives who are multinational, multicultural, who preferably speak at least one if not two different languages, and who have lived and worked outside of their home countries. This type of diversity, I think, makes us a very strong company.”
But diversity comes with its own set of challenges. Like the U.S. Army, Celanese executives have to do more before 10 a.m. than most people do all day. “We start our business day very early here—sometime between 5 and 6 in the morning,” Weidman says. “That way, we get two to three hours with our Asian colleagues before they knock off for bed. Plus we get our European colleagues who are right in the middle of their business day.”
Lately, what Celanese’s top brass have been discussing at the crack of dawn in Dallas is the three-year plan for earnings growth. That plan is already well under way. It includes continued productivity improvements, an expansion to the company’s current operations in China, and the recapitalization of the balance sheet—a nearly $4 billion debt restructuring that took place earlier this year. Weidman hopes the result by 2010 will be a $350 million annual boost to net earnings.
But when that growth hinges on all those weirdo chemicals, it can be a challenge explaining the strategy to Wall Street. But the way Weidman sees it, Wall Street is just another language.
“I speak Japanese,” he says. “And when you speak Japanese, you have to take a concept and translate it into different words and different sentence structures than you would ever use in English. When I go to Wall Street and talk to investors, it’s important that I speak a different language there than I speak in the company.
“That’s one of my greatest areas of enjoyment—explaining our company in language that investors will understand. When I talk to investors, I start first by explaining what needs of theirs are going to be met by us. Then I explain enough of our specific strategy to make them comfortable,” he says.
In other words: more “productivity improvement” and less “dissolution in aqueous solutions.”
4. Chemistry is hard. Business is hard. Change is hard. But not changing is even harder.
The changes at Celanese have not come without a price. Internally there have been those who have questioned Weidman’s strategy, especially shedding jobs and selling off parts of the business that had long been connected with Celanese. But, Weidman believes he’s on the right path.
“Change is tough,” says Weidman, who confesses to being a “change junkie.” “We’ve had a number of situations where we’ve had tough things that had to be done, like aggressively entering a new country or shutting down manufacturing plants or withdrawing from markets that we couldn’t get into because we had antiquated technology.
“And people tend to look at the tough decisions that have to be made and say, ‘That can’t be easy,’” he adds. “But I’ve been part of organizations where everyone knows a change needs to be made, everyone knows where the problem is, but the organization is caught in stasis and the leader fails to make that tough decision. Not acting is just prolonging the inevitable. And, usually when it gets so bad that a leader’s hand is forced, the fix is much more painful than if the problem had been addressed earlier. And in the meantime, you’ve probably put your best people against your most intractable problems. That just kills the morale of your organization. So you have to be willing to change.”
And with all the changes at Celanese, is Weidman now satisfied? Not even close. “The first thing a ‘change junkie’ or ‘change agent’ has to have is a healthy spirit of never being satisfied, combined with the ability to be pleased. That may sound contradictory. But I’m incredibly pleased and proud with the progress that our company has made. But I’m not satisfied that we’ve reached our full potential.”
CELANESE AROUND THE WORLD | |
| CHEMICALS Jurong Island, Singapore |  |
| ACETATE PRODUCTS Narrows, Virginia |  |
| HEADQUARTERS Dallas, Texas |  |
| NUTRINOVA Kronberg, Germany |  |
| TICONA Florence, Kentucky |  |
