Just One Word, Son--Plastics
How to build a billion dollar, global company in the span of a decade and still keep it all inthe family. The story of the Huntsman Chemical Corp., as related by a member of the clan.
On one of my visits to the Republic of Armenia, where our company was helping to rebuild homesdestroyed in the earthquake of 1988, we went for a roadside barbecue with some officials with whom wehad been negotiating all day. In Armenia that means pulling over to the side of the road, buying alamb from a shepherd, butchering it and cooking it right on the spot. We paid the shepherd $10 and hada traditional Armenian dish: shishkabob.
One of the officials was the first deputy to the Prime Minister of Armenia, with whom I had becomefairly friendly. He asked me if there was any way he could come to America. I was a little surprised.At that time, the breakup of the Soviet Union had not yet gotten underway, and I reminded him that, byhis country's standards, he had as good a life as any citizen could have — a nice apartment, goods thenavailable only on the black market, a decent pension, and access to a dacha.
He said, "I want to give all this up. I want to fulfill the American dream, to have an enterprise withmy sons."
The dream of creating a family business seems to transcend boundaries and cultures. I was impressed tofind it alive and well on a country road in Armenia.
The same dream has powered the growth of our family enterprise, the Huntsman Chemical Corp. My father,Jon Huntsman, founded the company in 1982. With more than $1.2 billion in sales, Huntsman is now NorthAmerica's largest producer of polystyrene plastic, the fourth largest producer of styrene monomer, andthe tenth largest producer of polypropylene. But we remain a family company. In fact,Forbes magazine has said about us: "The Huntsman group maywell be the biggest single family-run company in the U.S. — really family-run rather than simply headedby a member of the controlling family."
I am one of nine children, the second oldest at 29; my title at Huntsman Chemical is seniorvice-president. My older brother, Jon Jr., entered the company in 1984 but left to pursue a career inpublic service. My brother-in-law, Rick Durham, is a senior vice-president. My mother, Karen Huntsman,is a vice-president of the company, and my father-in-law serves on the Huntsman board along with myfather's father-in-law.
In explaining how a family business could grow into a worldwide enterprise within the span of onedecade, let me tell you about the extraordinary man who started it. Jon Huntsman, my father, was theson of a school teacher in Blackfoot, Idaho. He went to the University of Pennsylvania on scholarshipsand graduated from the Wharton School. He started his career with Dow Chemical and after a few yearswas directing a division that produced styrofoam egg cartons. But he became disgruntled working in abureaucracy and decided to go off on his own. He mortgaged his house, got a friend to join him, andstarted his first company, which not surprisingly produced styrofoam egg cartons.
After about a year, his competitors in the petrochemical industry — the majors — had learned to dislikehis aggressive nature. The price of his company's stock started to go up, and the price of hiscompetitors' egg cartons began to go down.
Then my father got together with his R & D "team" — which consisted of a good friend of his. Theyhit on the idea of joining two styrofoam salad bowls together at one end and creating a package in theshape of a clamshell. "You know," they said, "you could maybe put a hamburger inside it."
They thought they might as well start at the top, so they went to McDonald's to propose theircontainer as a revolutionary way of packaging hamburgers and extending their shelf life. In threevisits, my father couldn't even get an interview. Soon, his entrepreneurial spirit kicked in, and hetook his clamshell container to Burger King. Burger King invited him back to explain his idea, whichwas all my father needed. He then went to McDonald's and said he was talking to Burger King about theidea.
McDonald's agreed to try the clamshell for a few weeks, after which it gave my father's company aninitial order for 150 million containers. At the time, the company had the capacity to produce about10,000 containers a month. You can imagine how quickly the company had to grow to fill the order. Butas soon as it did, the majors began to catch on to the idea, and Dad sold the company.
As the years went by my father got to know some powerful people. He was given a chance to serve in the Departmentof Health, Education, and Welfare under the Nixon Administration, taking care of his clamshellbusiness on the side. Subsequently, Bob Haldeman hired him as an Assistant to the President. My fatherleft the Administration six weeks before the Watergate break-in. I remember as a young boy playingwith the McGruder children and others whose fathers went to prison. Politics has not left a good tastein the mouths of the Huntsman family. Nevertheless, my older brother served as the Deputy Assistant tothe Secretary of Commerce and did a phenomenal job. I commend my brother for doing what he wants, andmy father for letting go of his first-born and namesake.
My father has always involved the entire family in everything he does. I can remember taking businesstrips with him when I was about 10 years old. While most of my friends wanted to grow up to be firemenor policemen, I wanted to grow up to sell clamshell containers to McDonald's.
Dad always made this fun, and he instilled competition in the family. For example, he started the "IBeat Dad Award," which challenged the kids to beat him at any event of our choosing. The boys werepromised a .22 caliber rifle if they succeeded in beating him. The girls were promised a charmbracelet.
Once when I challenged my father to a skiing race, I found out something about his competitive nature.I had been skiing quite often for three years, while he had gone only twice. I picked the steepesthill for the race, but he reminded me that according to the rules, he was entitled to set the termsfor the first race. He picked a hill that was no steeper than a parking lot. When we lined up side byside to start, he said, "We'll go on my command." All of a sudden, he pushed me over, shouted "Go!"and off he went. I struggled to get up and pushed and pushed but couldn't catch him. He beat me acouple more times after loosening my bindings or some such trick. He finally let me beat him after hehad demonstrated his ability to win.
I've been telling you about my father, but I must emphasize my mother's role in both the family andbusiness as well. My mother and father have always been extremely close. Aside from being each other'sbest friend, they have been close business partners. The key to success in their philosophy as husbandand wife has been open communication and cooperation, which are the epitome of the most enduringpartnerships in life. That is something that he has tried to stress to the kids as well.
Dad's service to the Mormon Church taught us another tremendous lesson. In 1980, the Church asked himto leave his businesses for a three-year period and move the family 2,500 miles to preside over theirmission in the Washington, D.C., area. From this experience, the Huntsman children learned theprinciple that we must achieve balance in our lives between our family, our businesses, and ourservice to our church or our community. Having this balance will keep most men out of trouble. Myfather has emphasized this principle to our employees as well.
When my father had completed his mission, he was eager to get back some of the people who had workedin the company before and to start Huntsman Chemical Corp. His objective was to buy the chemical salesdivision of a major polystyrene manufacturing company. Polystyrene is the material that goes into theclamshell containers, which now represent about 3 percent to 4 percent of our business. The majorityof our products go into computer casings, TV cabinets, automobiles, furniture, toys, and otheritems.
In 1983 my father went after Shell's polystyrene division, which consisted of a single plant in Ohio.The plant was valued at approximately $85 million but the industry was losing money so my fathernegotiated a price of $40 million — $1.8 million of which was his own.
After all of the financials and legalities were negotiated came the biggest hurdle of all. We had towin over the 185 employees at the Ohio plant, who knew that if they came with us, they could not goback to Shell.
At the time, we had 10 full-time employees. We agreed to assume all of Shell's obligations forpensions, medical benefits, and bonuses for the Ohio plant employees. But we couldn't guarantee thatthey'd be working for 20 years, because we just didn't know if we'd be around for that long.
The sellers had told the employees that if they stayed with Shell, their employment would beguaranteed. This was a tremendous setback for us. Dad quickly organized a picnic with all 185employees and their families. Just before the event, he took the family aside and told us that ourobjective was to convince everyone at the picnic to become Huntsman Chemical employees.
So we kids went off to play with their kids. And Dad stood up at one point and talked about the warmthof working in a family business. If they wanted to get in on the ground floor of a fast-movingbusiness, if they wanted the thrill of a lifetime, they should come with us. He promised that everyemployee who joined Huntsman would receive a paycheck as long as he got one. Of the 185 people, 184came with us after that first day.
When we bought it, the plant was running at 65 percent capacity. Dad chartered a small plane andstarted visiting our accounts. Since a lot of them were family businesses and could relate to us, theybegan to come to us one at a time.
Our plant eventually got to the break-even point. We had it running at 100 percent capacity, and weweathered the two worst years in polystyrene history, 1984 and 1985. All the experts said that 1986would be a stellar year, but it turned out to be even worse than the three previous years combined.
The largest single producer of polystyrene in the United States at the time was a German company thatemployed about 1,000 people and had three facilities, all of which were larger than ours. Dad met withtheir chairman and worked out a deal to buy all of their plants. The Germany company's facilities hada combined replacement value of more than $400 million. Our company purchased them for $45 million,with an option to buy a refinery owned by the German firm for an additional $40 million.
We went to the banks and told them of our plans to become the world's largest producer of polystyreneand polystyrene monomer (our feedstock). The bankers must have been thinking, "Great, they want to getus into something like real estate speculation." After many months of haggling, they finally loaned usthe money and in April 1986 — our break-even month — we closed on the deal. In May, Dow Chemical shut downa number of their plants, and our margins increased virtually overnight.
From that point on, the business has been profitable. Huntsman Chemical has grown and diversified sowe are no longer dependent on polystyrene. In 1988 we acquired a polypropylene business and otherchemical companies. By the end of 1988 our annual sales were $1.3 billion, and our pre-tax earningswere $225 million. We were able to retire most of our debt, with the exception of some workingcapital. By 1990 we had plants in Thailand, Taiwan, England, Spain, France, Germany, and Russia.
I learned an interesting lesson from my father in 1988, when, after our earnings reached a record highfor the industry, we had an opportunity to go public. At the time there were six major privately heldpetrochemical companies, and all six had decided to go public. My father had always aspired to takeour company public; now he had the chance to get three-quarters of a billion dollars in cash by doingso — an astronomical sum then and now.
When he met with his vice-presidents, many of them voted to go public. But before signing on thedotted line, my father told the bankers that he had to check with "the Chairman of the Chairman." Hemet with my mother.
After discussing it for two hours, my mother told him he was not going to take the company public; ourfamily, our employees, our ideas, and our hard work were not for sale. My father and mother knew thatby going public we would not be able to keep the decision-making process within the family.
‘Whatever thou art, act well thy part’
I attended the University of Utah, majoring in political science. I was going toschool and working when, after a year-and-a-half of college, I decided to take a few quarters off. Itook a starting job with Huntsman Chemical driving a "semi" for one our oil and gas subsidiaries.
At the time, I felt a little embarrassed driving a semi. Before that, I had been traveling aroundgoing to meetings with my father in a business suit; now, here I was driving an 18-wheeler. Iremember the first time my father saw me out there loading the truck. He came out of a refinery, and Icould tell from his expression how proud he was of me. He had always taught me that: "Whatever thouart, act well thy part." He took as much pride in my driving a semi as he does today in my being ableto close a major contract.
In those days, I was delivering burner fuel to construction sites where crews were laying asphalt. Inoticed that one of our competitors was delivering the asphalt, another was delivering lube oil, andstill another was delivering diesel fuel. I came up with the idea of negotiating a package deal withthe refinery in which Huntsman would deliver all of these.
The first summer we did that it was a phenomenal success, and a lot of fun. In the daytime I'd go tothe refinery and buy the product and speculate on the market. At night I'd deliver the product. Wefinally got to the point where we had as many as 30 trucks, running asphalt during the season.
I never did go back to school. I keep telling myself I will one of these days.
Huntsman Chemical Corp.
Business: Producer of petrochemical products, notably polystyrenecontainers.
Location: Salt Lake City, Utah.
Sales: $1.2 billion (1991).
Founded: 1982 by Jon Huntsman.
Family officers: Jon Huntsman, chairman and CEO; wife Karen, board member; son Peter,senior vice-president; son-in-law Rick Durham, vice-president; son-in-law Jim Huffman, credit manager.
Ownership: 60 percent held by Huntsman family, 40 percent by Great Lakes Chemical.
Claim to fame: In just 10 years, the family has built the company into the largestprivately held petrochemical company in the country, and the largest producer of polystyrene in NorthAmerica.
Peter Huntsman’s article is adapted from a talk he gave at the 1990 Family Firm Institute conferencein Atlanta.