CEOs Speak: Executive Leadership

03 June 2002 00:00  [Source: ICB Americas]

Chad Holliday, CEO and chairman of DuPont, discusses executive leadership,

management and the direction of the chemical industry.

CMR: How would you define your

role as chief executive, and what do think is critical for effective leadership?



Mr. Holliday: The primary role of the chief executive is picking the right people and aligning them in a way that enables them to be most effective, to grow, and to use their talents. That is one of the most important things the CEO has to do. The right people, if they are supported right, will get the work done. There also has to be a really clear goal for the company, and the CEO has to establish and communicate the vision of what the company is striving to become and to achieve. In my experience, a company's vision has to be a noble goal, and it has to be an obtainable goal. It must be noble to inspire, and it must be obtainable to motivate and reward. Both the ability to inspire and motivate are critical tests of leading and leadership. So, picking the right people and articulating the vision in the form of expectations that the total organization can achieve are extremely important metrics for a successful leader.

Obviously the CEO has to be a good direct communicator. Whether it's internal or external, everything the CEO says has an impact on employees, customers, shareholders and the public. But the CEO has to resist the temptation to overcommunicate. With today's technology, I can send a note to everybody at anytime. And, it is very tempting to send a message to 80,000 people; on the plus side, I can reach everybody in the line organization with precisely the message I want, in the words I want. But that is not always the best way to communicate, especially if I want to strengthen the effectiveness of other business leaders in the company.

The judgment called for is when should the CEO should speak directly and when should the CEO trust the organization to cascade the message. Each approach has strengths and weaknesses. I think it is very important to speak as CEO to the entire organization on critical and timely issues. But I think it is more important to make sure good communications are continually flowing throughout the organization-rather than me personally always doing it. I did not always think this way, but I have learned a lot in this job, and this has been a very valuable lesson.



CMR: From your own professional history, what has served you best in your current role?



Mr. Holliday: Several things come to mind. My training is in industrial engineering, and I am a licensed professional engineer. So I often take a disciplined approach to evaluating and setting goals and objectives and approach challenges with a structure in mind.

This was especially valuable early in my career regarding my approach to leadership. The experiences that served me the best were the jobs I had when I was close to people and really evaluated and understood how they approached their work, how they dealt with problems, and how they got their jobs done. I'm thinking mainly of positions in which I had contact with first line supervisors and operators in a plant. That's where real work gets done, and an executive has to appreciate the reality around their work and concerns.

To this day when I write or say something intended for employees, I am always asking myself what will the operator on shift tonight think of this message? Am I speaking to that person in a way that he or she will understand or am I saying something that sounds good but does not connect to them or the reality of their jobs?

Another experience that has been really valuable is in a sense the opposite of my early career experiences with direct access to the organization. I'm thinking of the first jobs I had where I was leading an organization that was so large I couldn't know everybody. When you finally get to an organization of three, four, five thousand, wherever that breakpoint is where you really can't know everybody and can't be personally in touch, you have to rely on other people to give you the information about how things are going. Now you have to learn how to tell whether what you are being told it is the right and accurate information or whether it has been filtered or watered down or taken out of perspective. Making that distinction is one of the hardest things for an executive to do, but for the CEO, it's an essential skill.

And, lastly, the experiences gained by serving the company in other regions of the world are an invaluable asset. All of the components of being an effective leader are amplified when you are the guest of others, especially in understanding communications, protocol and culture.



CMR: How would you characterize your management style and what informal or formal changes have you made to reflect your style or method of leadership since taking charge of the company?



Mr. Holliday: I am a consensus builder. I search for the right answers to things. I want to make people feel like they are winners because they really are winning. And I like to reconcile conflict rather than compromise. When there is a difference of opinion, each side meeting half way is not necessarily going to result in the right thing to do. So the question I am always asking is, what is the right thing to do here? What is the correct business decision? If we can determine that, then we can work on bringing everyone to an understanding, an acceptance and an enthusiasm for doing it.

At DuPont, this approach is a little easier because it is really part of the style of management here that has grown over two centuries of doing business. I think that is why DuPont has been so successful-and why I am certain that we will continue to be.



CMR: How do you manage the inner-circle advisors to run the daily operations at DuPont?



Mr. Holliday: We have an office of chief executive made up of six people that assist me in providing strategic, operational and functional direction for the company. This team, along with five group vice presidents, has a direct role in shaping the business success of the company and provides the motivation and inspiration to meet our goals. We meet on a scheduled basis and share the management of the company through our creativity and expertise-with a constant focus on achieving the results that we have projected for the company.

It's a process that cycles through the year. In the spring, we review people. In the summer, we review the strategy of the business, and in the fall we review the operating plan. And those just happen to align with the three points of what we call our operational power house: people, strategy, and execution. We try to keep the three of those things in balance as we move forward.



CMR: Since taking the helm of DuPont, what would you identify as your greatest challenge and why?



Mr. Holliday: The greatest challenge is the transformation of the company. The biggest part of the challenge is the difficulty of turning loose the past in time to go into the future. If you wait until the need to do that is obvious, you have waited too long. But if you get too far ahead and change too soon, you could get into trouble there too.

During my time as CEO we have done a lot of turning loose of the past and moving onto the future. We got out of energy and pharmaceuticals, and now we're starting the separation of some historic fibers business.

Meanwhile, we have been moving rapidly into the future with things like biotechnology and renewable resources. We beefed up our finishes businesses. We beefed up electronics. And we replaced businesses we exited, not necessarily in terms of revenue, but with businesses that provide significant earnings.



CMR: Has the role of CEO changed in the last ten years and in the last five? How do you see the role changing?



Mr. Holliday: Well, I didn't pay a lot of attention to the role of CEO ten years ago; I was out doing my job. But my observation is that the demands of Wall Street seem to have increased and with instant communications on a global basis, you tend to get your report card more often and more frequently. So the need to be responsive has increased.

How do I see the role changing in the future? Speed will continue to be critical. It is going to be how quickly can you lead the organization to respond to changes but not react to changes. You won't want to be reacting to every stimulus, but rather determining which changes are real and matter and how should you respond to them. And then you will have can get the organization to respond to those changes even faster.



CMR: Given the emphasis on quarterly results, do you think there is often inherent conflict in serving shareholder and customer interests and how do you resolve this?



Mr. Holliday: No, I don't those think that those interests are naturally in conflict. I think you can make them so if you start operating for some financial number or some quarterly result. But, we are a company that is two hundred years old and which has tried to build for the future based on turning out solid products.

We are willing to invest in research, and we have got to continue doing that. So to me there is not a conflict between investing $20 million in a research project and achieving good quarterly performance. If I invest $20 million dollars in research and I solve a customer's problem or create new products to sell, I'll get the results the shareholder wants. Now if you get sloppy about cost or you lose market share to competitors or the working capital gets out of control, then shame on us. But poor operating performance has nothing to do with a long-term investment in R&D and other goals aimed at delivering superior products and solutions to customers. In fact, I think shareholders want to see you invest in long-range research, but they want to see some payback from it too.



CMR: What do you think are the most important criteria for evaluating a CEO's performance (such as share price, profits/losses)?



Mr. Holliday: Well it's not a share price. I think the best way to evaluate a CEO is to ask how well does the CEO deal with reality, and the concrete things that make up that company's reality, be it what the customers need, the competition, global trends, or whatever. Is the CEO in tune with that and can he or she get the organization ready to do the best possible job given what they have got. That's what you're really looking for. That is why I think share price, or even profits and losses, do not necessarily reflect what the CEO is doing. You have got to get much more detailed in your evaluation. In addition the CEO sets the "tone" for the company. The CEO must create a company all stakeholders can trust.



CMR: What other leaders from business or government do you think serve as a role model?

Mr. Holliday: I have got to say George Bush, current President of the United States. When you look at the way he has stayed solid through the crisis since September 11, it is just about as solid as you can be. Given he was a relatively new president, given he was elected by a slim majority at best-put all that together, and I think he is a role model for what is going on.

As for business leaders, I think of Dick Brown, head of EDS. When I look at the work he has put into that services company, the focus on people, the customer focus, I think he has made a big difference in the company in a pretty short period of time. It is one of the more significant turnarounds. Perhaps when you don't have as many fixed assets tied to the company is a little bit easier to do, but they have certainly done it.



CMR: What do you see as the greatest challenge facing the chemical industry?

Mr. Holliday: I think we are in an industry under tremendous pressure: pressure from our customers to lower costs; pressure from non-governmental agencies on environmental issues; pressure from the legal system in this country; and pressure from global competition. The challenge is how do we come through that and remain strong. It means finding creative ways and the right people, so they can deal with those pressures. I think that next year and for the next five years those trends are going to continue. That is another reason why at DuPont, we are not just a chemical company, but we are a science company. One of our customers taught me that we have to focus on not just selling products but on solving customer's problems. And the more companies that are doing that, solving problems using chemistry-or in our case, using many different sciences-the more we'll be successful. If you just try to sell as many chemicals as you can, it is going to be a tough road.

Michael Parker, president and CEO of Dow Chemical Company, offers his views on executive leadership, management and the direction of the chemical industry.

CMR: How would define your role as chief executive, and what do you think is critical for effective leadership?



Mr. Parker: My obligation as CEO is clear-to deliver maximum long-term value to all of our stakeholders. This is not a task I can undertake on my own. It requires the dedication and commitment of all of Dow's 50,000 employees worldwide. That is why I've increasingly come to see my role as CEO as both a teacher and a motivator. We are working toward a concept we call "leadership at all levels." Simply put, we want every one of our employees to take on the mantel of leadership. That means, among other things, knowing and understanding our strategy and being passionately committed to implementing it.

How do we define effective leadership? Having a deep knowledge and understanding of our industry is fundamental as are effective communication skills to share this knowledge and understanding with others. Leaders must possess the energy to inspire others and, at the same time, the patience to allow change to transpire. Leaders should be able to build teams and create alignment while understanding that everyone sees things differently and that diversity is valuable. Leaders have to be unselfish-able to set aside their personal agendas and pursue what is best for the team. Most importantly, leadership is about walking the talk. Leaders must live their beliefs by doing what they think is important-not just by saying what they think is important to others.



CMR: From your own professional and educational background, what has served you the best in your current role?



Mr. Parker: My formal education is in chemical engineering and business. But it is the lessons I learned from both my family and my early career experiences that I've found to be truly invaluable over the years. As a youth, I played a lot of sports. After every match, my mother encouraged me to take the time to sit back and analyze why I either won or lost. That taught me to extract learning from every experience. Early in my career, Dow provided me with a number of diverse opportunities. I've had the opportunity to work in virtually every one of our businesses, and in a number of geographies. This broad exposure to so many facets of the company has proven to be invaluable.



CMR: How would you characterize your management style? What informal or formal changes have you made to reflect your style or method of leadership since taking charge of Dow Chemical?



Mr. Parker: I am a strong proponent of teamwork. As such, I've implemented a new leadership model at Dow based on high-performance teamwork.

Our company is now led by the corporate operating board (COB)-a 16-person team, which I chair. The COB is responsible for establishing and implementing all aspects of Dow's strategy, as well as assessing short- and long-term performance. The group comprises the company's eight business group presidents, our six functional corporate vice presidents, and the chair of Dow's global geographic council. These senior leaders now spend about a quarter of their time elevating to the corporate level. This gives them an enterprise-wide perspective. They spend the remainder of their time focusing on their individual area of responsibility.

The benefits of this model are many. First, we've created a new level of understanding and knowledge across all dimensions of our company that has optimized decision-making. Second, we've generated greater enterprise-wide alignment, which will ultimately speed the implementation of our strategy. And, third, we've begun to break down artificial barriers-corporate silos-that hinder efficiency, productivity, and customer orientation. Additionally, the COB serves as a true leadership development engine, deepening Dow's management pool.



CMR: How do you organize and manage your inner circle of advisors to monitor the daily operations of Dow Chemical? How do you organize and manage the inner circle for directing longer-term strategies?



Mr. Parker: There is no "inner circle." The corporate operating board (COB) and I all work together as one high-performance team. During our first year together we met for a week a month. Now that we have built a foundation of common knowledge and understanding, we are reducing the amount of time we need to spend together.

To manage and organize our short-, medium- and long-term strategies, we have created what we call the business excellence strategy implementation model. This model clearly lays out the aspirations and strategic direction of our company, the measurements by which we will track our progress toward those aspirations, and the way in which we expect our businesses to be run. It creates enterprise-wide alignment on priorities, providing our business leaders with the clarity and focus they need to take on heightened accountability for delivering strong business results. This enhanced level of business empowerment means that decisions are being made closer to the marketplace giving us a distinct competitive advantage in delivering both short-term results and formulating longer-term strategies.

The COB conducts annual business reviews based on the elements of the business excellence model. This ensures both enterprise-wide alignment and accountability.

CMR: Since taking the helm of Dow Chemical, what would you identify as your greatest challenge and why? What would you identify as your strongest accomplishment and why?



Mr. Parker: The biggest challenge for Dow is to demonstrate that we are capable of creating substantial levels of value growth. We've made tremendous strides in productivity. Now its time to prove we can simultaneously pursue both productivity and value growth-no easy feat. One of the keys to accomplishing this is Six Sigma. Six Sigma creates the organizational mindset and provides the tools to reduce costs, increase customer loyalty and, through Design for Six Sigma, innovate totally new businesses.

Dow's greatest accomplishment over the past year has clearly been the integration of Union Carbide Corp., a merger that closed in February 2001. We've surpassed our year one goal of capturing $650 million in cost synergies by more than 30 percent and are well on our way to delivering, ahead of schedule, our two-year target of $1.1 billion in cost synergies. Not only have we delivered the cost savings, we've done so while turning in our best safety performance and we've demonstrated the highest respect for people-a fact reflected in the stability of our employee satisfaction scores. I should also mention that we are on track to meet our integration plans by the end of 2002 for our slate of smaller, performance-oriented acquisitions which will net us an additional $230 million of cost synergies. We've accomplished all of this in the face of the worst business conditions that the global chemical industry and Dow have seen in decades.

Delivering the cost synergies is the first step to generating significant value growth from our recent mergers and acquisitions activity.



CMR: How has the role of a CEO changed in the ten years and the last five years? How do you see the role of a CEO changing over the next five years?

Mr. Parker: It is important to see the changing expectations of CEOs in the context of an ongoing journey. In recent years, the world has experienced tremendous change. From the fall of the Berlin Wall to the liberalization of trade to the advent of the Internet, we have witnessed the globalization of the world's marketplace. And as the world has changed, the expectations placed on CEOs have intensified.

The impacts of globalization on the CEO's role have been profound. Let me share just a few examples. New competitors have entered the scene, increasing the need to gain a low-cost advantage and hastening the commoditization of our products. The Internet has made the flow of information instantaneous, making it necessary to respond in real time to emerging issues.

In this kind of environment, the CEO must create an organization that is agile-constantly listening to the marketplace, interpreting what we observe, and adapting as necessary. To do that, a CEO must stimulate new levels of teamwork and leadership throughout the entire organization-empowering those closest to the market to make decisions. In order to facilitate this, the CEO must clearly set out an operating framework within which those decisions can be made. That is the very essence of the business excellence model I talked about earlier.

Additionally, CEOs are under more pressure today to deliver value to a wide variety of stakeholders-ranging from shareholders to community members. CEOs are accountable for delivering success not just on the income statement, but on all three elements of the triple bottom line of economic prosperity, environmental stewardship and corporate social responsibility.

Accomplishing all of this means that today's CEO needs to be highly visible to all stakeholders-forging relationships, sharing information in a credible and transparent manner, and demonstrating commitment. This demands an incredible amount of energy.

Looking in the future, the premium on leadership will only continue to rise. All stakeholders will continue to demand ever-greater levels of performance on all aspects of the triple bottom line, and post-Enron, CEOs will be under intense scrutiny increasing the demand for greater transparency.



CMR: Given the emphasis on quarterly results, do you think there is often an inherent conflict in serving shareholder and customer interests and how do you resolve this? How do you balance employees in this equation?



Mr. Parker: The art of leadership is finding the right balance. We are a 105-year-old company interested in becoming a 200-year-old company. That means we've got to keep the short-, medium- and long-term in view at all times.

Ultimately, a company can only achieve long-term success if it balances the interests of all its stakeholders-customers, employees, shareholders, local communities and society. Sustainable development, with its triple bottom line of economic prosperity, environmental stewardship and corporate social responsibility, creates a framework for doing exactly that.

A strong and robust company is best able to provide for the needs of all its stakeholders. As we seek balance among all of the elements of the triple bottom line, it is essential that we listen clearly to the marketplace and understand what it is telling us. The forces of commoditization, consolidation and competition are always at work. We've got to stay agile to respond to these forces-and sometimes that means restructuring businesses and impacting people. When that happens, it is essential to live up to our values and treat those people with the utmost respect. We've also got to be innovative, constantly listening for the signals that the marketplace is sending us about new growth opportunities-opportunities that will lead to enhanced value creation for all of our stakeholders, including our employees.



CMR: What do you think are the most important criteria in evaluating a CEO's performance (such as share price, profits/losses)?



Mr. Parker: I believe that long-term value creation is the ultimate criteria in evaluating a CEO's-as well as a company's performance. But it is not the only criteria. It is imperative that a CEO creates success on all elements of the Triple Bottom Line, including economic prosperity, environmental stewardship and corporate social responsibility. In doing so, a CEO is ensuring his or her company is both retaining its license-to-operate and creating the opportunity for future value growth. Therefore, it essential that a company have a balanced scorecard with which to measure performance across all three of these elements.



CMR: What other leaders from business or government do you think serve as a model for leadership and why?



Mr. Parker:I've had the privilege to meet and work with a number of excellent leaders, both from Dow and from other companies, over the course of my career. From each one I've tried to listen carefully and learn. It would be impossible to single out just one or two. And, I should point out, this is an ongoing process. When I meet and interact with people, I also try to listen respectfully, without prejudging either them or their ideas. By doing so, I am constantly learning and enriching my own leadership skills.



CMR: What do you see as the greatest challenges facing the US chemical industry over the next year? The next five years?



Mr. Parker: In the short-term, the greatest challenge our industry faces is overcapacity. Operating rates have plummeted, taking margins with them, and we won't see a full recovery in our industry until supply and demand come into better balance.

Longer-term, over the next five years, our industry faces three key challenges. First, we must continue to have access to competitively priced energy and feedstocks. Second, we must improve the reputation of our industry by embracing sustainable development. And, third, we must find ways to renew the spirit of innovation that built our industry.

Werner Wenning, chairman of the board of management of Bayer AG, discusses executive leadership, management and the direction of the chemical industry.

CMR: How would you define your role as chief executive? What do you think is critical for effective leadership?



Mr. Wenning:There are multiple leadership roles a CEO or chairman, must provide, from being a team leader one moment to being a coordinator and motivator the next. He communicates the direction of the company, sets the tone for it and is its public face.

As the new chairman of Bayer, I plan to focus on providing strategic direction, but allowing others the freedom to determine the best way to carry out that direction. Those managers who are running the business must make the decisions that effect their daily operations. An important part of my responsibility is to coach senior management and to identify management potential.



CMR: From your own professional and educational background, what has served you best in your previous role, and will that change in your current role?



Mr. Wenning: My background demonstrates that one can start as a trainee and make it to the top. I also bring a broad international perspective to the job, spending more than 15 years outside of Germany, including posts in Spain and Peru. These assignments, in addition to giving me first-hand experience dealing with global issues, were great learning experiences. They have given me a greater appreciation of diversity, of different people and cultures.

During my career at Bayer I was also involved in various business activities, from fibers to plastics, and from health care to several corporate functions. From early on I was given more and more responsibility for managing people and for managing products. These in-depth experiences shaped my understanding of the complexity of our businesses and markets. It also gave me the opportunity to gain experience in leadership. During my job as CFO, for example, part of my responsibility was to communicate to shareholders and analysts. This, I believe, will also serve me well as a CEO.

Today, Bayer is in the midst of its biggest reorganization. We are setting up four operating companies to be more flexible, more agile and more competitive within their selected businesses. By breaking with some of our traditions, by embracing new ways of doing business, we will take advantage of the new holding organization. From that perspective, I think this is a great time to be chairman.



CMR: How would you characterize your management style? What informal or formal changes have you made to reflect your style or method of leadership since taking charge of Bayer AG?



Mr. Wenning: I like to compare my role as chairman to that of a football coach. A good coach must harness the abilities of individual performers, many of whom are outstanding individual athletes, melting them to form a cohesive team.

The new Bayer must be like that as well. Our new operating companies will be independent players, but when brought together, they should form a team. My job is to provide guidance and set strategic direction so that our holding company organization will be stronger than ever.



CMR: How will you organize and manage your inner circle of advisors to monitor the daily operations of Bayer? How will you organize and manage the inner circle for directing longer-term strategies?



Mr. Wenning: Our reorganization is progressing more quickly and is going deeper into the organization than would normally be expected. A change in the organization also leads to changes to our management. Most recently, we have announced our top-tier managers for the holding, operating and service companies.

As for monitoring the daily operations of Bayer, there is a constant flow of communication and information amongst senior management through various channels, including meetings and electronic media. My way of conducting business is to always have an open door for my direct reports and to make sure that decision-making processes only take a short time.

In the future, the holding company board of management will concentrate on portfolio management, naming business heads, allocating budgets and determine overall strategy, leaving the day-to-day management up to the individual operating companies.



CMR: What would you anticipate will be your greatest challenge and why? What would you like to look back on in five or 10 years and identify as your strongest accomplishment?



Mr. Wenning: Clearly the greatest challenge facing not only our management but also the entire company is the transition to a holding company structure. The groundwork is being laid today. On July 1, 2002, Bayer Health-care, Bayer Polymers, Bayer Crop-Science and Bayer Chemicals will operate in the new structures. Our job is to make this paradigm change quickly and smoothly, without any interruption of service to our many customers. In addition to that, we want to promote more aggressively an entrepreneurial spirit amongst employees.

Other challenges include our searches for partnerships in the HealthCare business-which is critical to the long-term success of Bayer-and in our chemicals business. Both of these endeavors should be easier given the new corporate structure, which is designed to facilitate strategic options such as cooperation agreements, joint ventures and strategic alliances.

A third challenge is the successful integration of Aventis CropScience. This acquisition is the largest in Bayer's history. The new company will be a world leader in the agrochemicals industry.

I expect that managing these challenges successfully will make Bayer a better, stronger, more competitive company that provides sustained value and substantial growth as a result of the change.



CMR: How has the role of a chairman/CEO changed in the last ten years and the last five years? How do you see the role of a chairman/CEO changing over the next five years?



Mr. Wenning:The role of a chairman has changed as the nature of business and the way we conduct business has changed. For example, globalization is pushing us to make faster decisions, and the chairman and the board must accommodate that demand. Consolidation and specialization are forcing us to be more flexible. Shareholders lead us to focus on our strongest businesses. The board of management and my senior managers will look beyond the short-term success and ensure we provide long-term value creation. As chairman, I will remain on top of the short-term performance of each company, but also provide long-term strategic thinking, setting the long-range goals, ensuring the group is moving in a direction that is not only profitable today, but ensures long-term results.We are changing the company, and that in turn will change the role of the chairman; a chairman of a holding company has a different role to play than the chairman of an operating company.



CMR: Given the emphasis on quarterly results, do you think there is often an inherent conflict in serving shareholder and customer interests and how do you resolve this? How do you balance employees in this equation?



Mr. Wenning: If we agree that our goal is long-term value creation, there is no conflict. I believe that in a good company you can balance both customer needs and sustained value creation while benefiting employees. By solving customer problems, by providing solutions, you add value and build relationships. These, in turn, benefits shareholders and employees, many of whom are shareholders as well.



CMR: What do you think are the most important criteria in evaluating a chairman/ CEO's performance (such as share price, profits/losses)?



Mr. Wenning: I think there are multiple ways to measure a chairman, from the company's performance in the financial market to its reputation, for which he is often the external face. A chairman who is respected by the market enhances the value of the company. But the truest performance metric is how the company performs compared to others in its market or industry.

The move to a holding company structure will allow shareholders and others to make better comparisons. By forming a pure play crop protection company, for example, the financial community will be able to measure its performance against competitors in this market. This is just one example of the increased transparency our new structure will provide the financial community.



CMR: What other leaders from business or government do you think serve as a model for leadership and why?



Mr. Wenning: Different businesses require different models of leadership. I think there is no general model that can be applied to the various challenges in business. What works in one company might fail in a company in a different market or with a different culture.



CMR: What do you see as the greatest challenges facing the European chemical industry over the next year? The next five years?



Mr. Wenning: Chemical companies suffered as the economy underperformed in 2001 and uncertainty continues for much of the industry as the global economy is not recovering as quickly as one might expect. Consequently, our industry must strive to attain even greater efficiencies. At the same token we must extend our innovative potential to ensure long-term growth potential. New applications and new markets need to be identified in order to generate growth opportunities for the chemical industry.

Another important subject for the European chemical industry in the next few years will be the chemicals policy review planned by the European Union. The Council of Environment Ministers requested the European Union Commission to prepare in a 'White Paper' the strategic reorientation of the EU chemicals policy. The industry will face fundamental questions about the risk assessment of new and existing substances, the application of the precautionary principle, bans of production and use of certain substances. This is a very complex issue and I urge the EU Commission and the European Parliament as well as the governments of the member states, to decide responsibly.

Moreover, climate protection is a global challenge that the chemical industry has been taking up for many years. However, it is not primarily laws and regulations which will lead to further success in environmental protection. Our past experiences show that far-reaching regulation, down to the finest detail, does not make sense. Basically, there is a need for self-responsibility and cooperation rather than legislation, duties and unnecessary controls. In other words, the state should specify the objectives and then allow the industry to determine for itself how these targets are to be reached. This has already occurred in the area of air pollution, where we have actually exceeded our targets, and would in our opinion also function well in other areas, such as emission trading.

Jrgen F. Strube, chairman of BASF's board of executive directors, discusses

executive leadership, mangement and the direction of the chemical industry.

CMR: How would define your role as chief executive, and what do you think is critical for effective leadership?



Mr. Strube: The German board system does not include a CEO as in the Anglo-American business world. The German Vorstand (board of executive directors) operates as a team with joint responsibility, within which each board member has clearly defined areas of responsibility. As chairman of the board, it is my job to look for the direction of the company, for the synergies and make sure that we are getting the best out of the company as a whole.

Critical for effective leadership is the ability to prioritize and to take time for the important things. A good leader must be a good listener who is able to take an idea and bring it to life.



CMR: From your own professional and educational background, what has served you best in your current role?



Mr. Strube: The variety of positions-multifunctional and multi-regional-that I have held during my career. They have enabled me to learn a variety of skills. One needs to recognize how things fit together, how they are connected. I am a lawyer by training. Being a lawyer not only gives me the necessary knowledge about laws, taxes, etc., but it also means that I was able to develop analytical skills and the ability to recognize patterns, to learn from the past. Interestingly enough, the recognition of patterns is a very important skill not only in law but very much so in the chemical world!



CMR: How would you characterize your management style? What informal or formal changes have you made to reflect your style or method of leadership since taking charge of BASF AG?



Mr. Strube: I manage by questioning, listening to the answers, analyzing them, giving impulses as to how the idea can be further developed and encouraging the implementation of new ideas. I believe that very important decisions should be made by consensus. All parties involved should have a chance to state their opinion. However, once a decision has been made, everyone then has to support it and implement it. To achieve this, three things are required: communication, communication and more communication.

I have focused on making my team reflect the style of BASF. A company which is dynamic, yet reliable; young, but experienced; and above all diverse. BASF's management team is one with substantial experience in handling businesses on a transnational basis. Over the past years, BASF has been developing into a truly transnational company with a strong presence in all major regions of the world. Most of our board members has spent more than five years outside of Germany. If you look at the next level, the presidents of our divisions, about 85 percent of them have had management experience outside of their home country. As the world becomes a global market, in-depth exposure to other cultures is vital for our management team. In addition, I think the next important step is being done right now. The team is becoming younger, and many who have been working very close to the customers are gaining leadership positions today.

Important for this team is also constant communication. This has been made easier through e-mail, fax, etc. However, I believe that it is still of utmost importance that our management team from time to time meets face-to-face. Only then can the new communications media be used effectively and efficiently. To further this, we have, for example, introduced an annual meeting of our top management team. In this international executive council, we meet to discuss and exchange ideas and to form networks that extend beyond organizational boundaries.



CMR: How do you organize and manage your inner circle of advisors to monitor the daily operations of BASF AG? How do you organize and manage the inner circle for directing longer term strategies?



Mr. Strube: For managing the daily business, I think the delegation of responsibility is of key importance. That is why BASF managers enjoy the freedom to run their businesses within the corridor of agreed upon targets. However, we keep in very close contact to develop, coordinate and implement longer term strategies.



CMR: Since taking the helm of BASF AG what would you identify as your greatest challenge and why? What do you identify as your strongest accomplishment and why?



Mr. Strube: The greatest challenge was and remains to run the world's largest chemical company in an industry which is constantly changing. When I became chairman of BASF, we were involved in a much broader range of businesses than we are now. At that time, we owned a coal mine, made audio and video tapes and pharmaceuticals. From the very beginning, portfolio management was a major challenge, and it remains an ongoing task. In the past 10 years, BASF has sold businesses which, at the time of their divestiture, generated sales valued at approximately  11 billion. During the same period, the company acquired businesses which, at the time of their acquisition, generated sales valued at approximately  9.5 billion. We actively analyze our core competencies to see which markets are attractive to us and which markets we have a competitive advantage in. We have been successful at this. Today, two-thirds of our businesses are number one, two or three in their markets.

Something I am particularly proud of is the introduction of the word "Verbund" in to the English language. This is not a linguistic success, but rather the proof that BASF has been successful at implementing and communicating its unique strategy. Verbund is more than just the integration and linking of different plants; it is BASF's management philosophy. For example, our employees worldwide are part of our know-how Verbund or the "Verbund of Minds" through which they can exchange ideas, discuss problems and share experiences. This allows us to benefit from the idea of Verbund not only in our production, but in all aspects of our businesses such as in R&D, logistics and marketing. I feel proud when I hear our employees in the United States or in China or Malaysia say that they belong to the BASF Verbund.



CMR: How has the role of a chairman/CEO changed in the ten years and the last five years? How do you see the role of a chairman/CEO changing over the next five years?



Mr. Strube: Over the past years, I would say that things have become more hectic. This is due to the increase in the availability of information and the speed by which it travels. Issues are global and decisions have to made immediately. At the same time, regulators and shareholders are becoming more and more demanding. The world has become smaller. The challenges arising from this can only be mastered by employees who proactively look for ways to stay ahead of the competition and who have a desire to shape the future. Therefore, I encourage our employees to think and act like entrepreneurs. They need to take charge of their businesses!

I believe this trend will further increase in the coming years. But I consider this a positive development. It is good that the world is growing together and that there are more opportunities for companies, and thus more opportunities for employees, customers and shareholders. As BASF is a driver of innovation across all industries, we have substantially helped to develop, innovate and produce many of the things that help make today's modern world more efficient and will continue to do so in the future.



CMR: Given the emphasis on quarterly results, do you think there is often an inherent conflict in serving shareholder and customer interests and how do you resolve this? How do you balance employees in this equation?



Mr. Strube: Quarterly reports are important to give shareholders regular updates on how their company is doing. However, it would be a mistake to manage the business on a quarterly basis. Shareholder interests are best served by companies who succeed in generating value over the long term. And this can only be accomplished by a company that has the best employees because they are the ones who will offer customers the best solutions. You see, it is a cycle that positively reinforces itself, which does not mean that it is easy. But there is no alternative to this philosophy if you want to stay ahead of the competition.



CMR: What do you think are the most important criteria in evaluating a chairman/ CEO's performance (such as share price, profits/losses)?



Mr. Strube: It is a CEO's job to create value for and with all stakeholders of the company. Many see the share price over a long period of time as the only comparable measure. However, a share price is based on expectations about future performance, which may or may not come true. Just look at the dot.com hype. One can argue that the market did eventually recognize the truth, but this shows us that the strategic position of the company in an attractive and profitable industry with competitive advantages is the key task of a chairman. This position results in a long-term share price increase as a general indicator of whether a strategy is successful. And in this perspective, BASF is quite successful. Over the past 10 years, our shares have outperformed Germany's DAX 30 index and the EURO STOXXSM 50.



CMR: What other leaders from business or government do you think serve as a model for leadership and why?



Mr. Strube: Sir Harvey Jones, former chairman of ICI once said that he defined his task as having to operate a collection of small businesses while still being able to command the strength of the large. He turned ICI into a hugely successful and profitable company. He thought it was important for his employees to be able to state their opinion and not to be afraid to fail. His book Making it Happen is a must read for all leaders.



CMR: What do you see as the greatest challenges facing the European chemical industry over the next year? The next five years?



Mr. Strube: Short-term we are faced with the European Commission's White Paper on "Strategy for a future European Chemicals Policy," which contains proposals for the reform of European legislation on chemicals. We support in principle a reform of European chemicals legislation since the present laws are very complex.

However, the new regulations of the European chemicals policy will have far-reaching repercussions on the whole European chemical industry and its customers. According to current estimates, the new chemicals legislation will burden the industry with costs of more than  8 billion, without taking into account the effects on the labor market, our customer industries and the competitive situation. Moreover, the economic and social effects of the new strategy, particularly in comparison with important industrial regions like the United States and Asia have not been sufficiently studied.

A question that will therefore be of major concern is: How can sustainability be combined with a further increase of the competitiveness of the chemical industry in Europe in order to create and retain jobs in an innovative industry? So far, the chemical industry has been good at providing an answer. We have built trust in our industry and we have proved that we care. It is our intention to continue to do so.

These questions have to be answered by an industry that is quite fragmented and consolidating as well as deconsolidating at the same time.



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