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MANAGEMENT
Dow Chemical's board of directors has ousted Michael D. Parker, 56, as president and CEO after just two years in the job and has named Chairman William S. Stavropoulos to fill the vacant slots, as well as to continue as chairman. The 63-year-old Stavropoulos was president and CEO from 1995 to 2000, when he was succeeded by Parker.
Along with declining earnings, the company's long-term debt has soared until, at the end of the third quarter, it was 6% higher than stockholders' equity. Kyle Loughlin, analyst with Standard & Poor's, however, points to Dow as one chemical company that has performed well in preserving its credit quality. John Roberts, a chemical analyst with Buckingham Research Group, says of the ouster: "This is a complete surprise to us and contrasts with Dow's history of having one of the best managed succession processes. Since no additional restructuring accompanied the announcement, we believe this was a surprise inside [Dow] as well." Roberts believes the move is related strictly to disappointing earnings and does not signal any negative developments in asbestos litigation or other issues arising from Dow's acquisition of Union Carbide in 2001. Dow says the decision doesn't reflect any concerns about impropriety. The company's debt was very much on Stavropoulos' mind when he addressed Dow employees on Dec. 18. "For the past eight quarters," he told employees in a satellite broadcast, "we have not made enough money to pay dividends; we have had to borrow money to pay them. Our debt ratio is too high and is compromising future growth. This level of debt impacts our financial flexibility and our long-term future." Thus, the company is going to improve cash flow by improving productivity and cutting costs. "This effort is going to be far-reaching, touching every part of the company and putting everything on the table," he said. "The bottom line is we only spend money on the essentials." Stavropoulos also reaffirmed the need to improve cash flow. He said the company will get prices and volumes moving in the right direction to improve profit margins; examine the profitability of customers, account by account; evaluate plants and accelerate decisions about closing underutilized or uncompetitive plants; and evaluate Dow's organizational structure, including considering job elimination. "Frankly, our problem has been underdelivery," Stavropoulos said. "We have to get results and get them quickly, with clear accountability," he added. One Dow insider says there is no question that there will be some major moves. Stavropoulos "is not a very patient guy in making decisions," the insider says. "The big difference is that Parker had the patience of Job, and, unfortunately, during these times patience is not what you want. You have to go in and force things to happen." |
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