Dow Chemical (DOW) has had a dizzying five years. Three times during that span, employees have arrived at the office only to find a new chief executive: Michael Parker in 2000, William Stavropoulos in 2002, and Andrew Liveris in 2004. Now, Stavropoulos says, the game of musical chairs has ended. He might know. The Dow chairman engineered all three moves. He installed Parker as his handpicked successor as CEO, took back the job when Dow's fortunes plunged, and then groomed Liveris as his second-round heir.
One reason Stavropoulos thinks this time is different: Dow's fortunes are going up, not down. No one can say for sure, of course, how much of the success resulted from Liveris' tenure, which started last November, and how much would have occurred anyway as the economic expansion lifted demand for Dow's chemicals and plastics and enabled the company to jack up prices. Whichever the case, clearly the Midland (Mich.)-based giant is enjoying its best years in a decade.
Dow's earnings jumped 62% in 2004, to a record $2.8 billion, as sales rose 23%, to nearly $40.2 billion, also an all-time high. Michael Judd, an equity analyst with Greenwich Consultants in Rumson, N.J., foresees Dow breaking its records in 2005 and again in 2006, when he says profits should hit $6.2 billion on $51 billion in sales. "It's hard to imagine that things could be any better for them in the next couple of years," Judd says.
Stavropoulos, 65, who has stayed on as chairman of Dow, talked recently with BusinessWeek Senior Correspondent Michael Arndt about CEO successions. Edited excerpts of their conversation follow:
Q: What's different about this transition? What did you learn from your earlier handoff?
A: This was probably more formalized and more intense. We looked at [what] we thought the company needed, looked at the future of our company, and what kind of person we needed to lead it. We also looked at the attributes of the candidates. We asked the candidates to articulate in writing what they thought our company needed and how they could fulfill those needs.
We did a lot of interviewing. Everybody on the board of directors interviewed all the candidates individually. We matched the impressions of the interviews and the written part of the process with the attributes that we thought the company needed, whether it was asset management or strategic implementation. Then we formed a small group to make final recommendations. Then the whole board made a decision and picked Andrew.
We also went through the intermediate step of having a chief operating officer, something we didn't do before. We wanted to build a partnership and not just fill a job. So there was a whole year of development in which the CEO and the COO worked with the board and outlined a plan of how we would implement our turnaround strategy.
Q: How many candidates did you end up looking at?
A: You kind of go from six or seven down to three.
Q: How long ago did you start looking?
A: Obviously, you're always looking and evaluating candidates. But this final process I have described was five months.
Q: Did you look at outsiders?
A: Part of the process is asking yourself, do you look outside? Do you need to get a comparison? The board, after analyzing the situation, came to the conclusion that we had very, very good candidates internally, so we didn't.
Q: How has the process changed from when you first became CEO in 1995?
A: What's required of the job today is pretty daunting. The CEO has to have tremendous energy, intelligence, breadth of experience, breadth of interests and knowledge. The person has to be able to juggle the many facets of the job. The requirements of the job are much greater. And I think the stakes are higher. So you want to be thorough, and you want a lot of people to really look at folks.
Q: You went through a transition roughly four years ago. You chose a Dow insider, somebody with lots of experience in the company. What went wrong?
A: It was a pretty bad economy and pretty bad business environment. Sometimes things don't work out the way you expect.
Q: In general, how well do you think Corporate America does on grooming the next CEO?
A: I think it's mixed. We see companies that groom people from within and do an outstanding job. Sometimes, though, you see great companies that don't even have an internal candidate.
Q: Many consultants on corporate governance say that, when a CEO leaves, he should leave the board as well so he's not there to second-guess the new CEO. In your case, that hasn't happened. Why are you still there?
A: One size does not fit all. It has to do with the culture of the company, what is needed at the time, the personalities of the incoming CEO and the outgoing CEO. We always felt that all other things being equal, the more knowledge you had around the table, the better off you were. We've been doing it this way for over 40 years at our company. We feel very comfortable with it. There's only one boss, and that's the CEO. There's not a two-headed monster here. EDITED BY Edited by Patricia O'Connell