Dow Chemical Is Unraveling And Its Long Term Viability Is Being Damaged
The days of first writing of Dow Chemical appear a world away. We first highlighted Dow and their CEO in the PwC post on CEO hubris and fallibility. This week we see that Dow's stock has again taken another large hit due to severe management miscalculations and poor regard for corporate risk management practices.
This week it appears Dow's Kuwaiti joint venture has been cancelled - we remarked that Dow's foreign investments could be cancelled. (Prepare for more of this across a multitude of corporations.) The ill-planned Rohn & Haas merger is now in jeopardy because it will more than likely substantially harm Dow's credit rating and, therefore, its long term viability. (Ratings agencies just downgraded Dow this week.) A failed merger at the agreed to price will likely cost Dow substantially as well. So, regardless of the merger outcome, Dow has been seriously damaged economically. And, Dow is rumored to potentially be cutting its dividend. These failures were easily avoided.
While Dow's CEO was a regular on the media circuit, it appears he should have been spending more time managing the business. And, it appears it has only taken about two years at the helm of Dow for him to jeopardize the long term health of the company. For that the CEO earned $15 million in 2007 and probably at least that much in 2008. One thing I am quite certain of is that Dow's CEO won't be a regular member of the media tour anymore.
In cases where CEOs didn't found a company, they are simply hired stewards. And, often not very good ones at that. As we have highlighted time and again, the wealth of the company is determined by the cumulative capital of its associates. A great CEO realizes this and works to unlock this capital onto the market. For that, it is empowered employees and shareholders who should be receiving the vast majority of the wealth created at publicly traded companies. Not the CEO. That is, unless the CEO has brought a successful strategy to the organization. To believe an administrator who doesn't invent, sell, create or make anything should be given unchecked power and unheard of riches in a publicly traded company is completely ridiculous. This elitist mindset is akin to a feudal system where the creativity and labor of the repressed create wealth for their repressors yet share little of the spoils. At some point society will no longer put misplaced trust in a self-appointed ruling class that obviously doesn't deserve such unchecked control. And, definitely doesn't deserve a pass on oversight. In fact, what we see today rails against the principles this country was founded on.
Mistakes are a part of life. That Dow's CEO made mistakes is irrelevant. What is important to understand is that a well-managed organization of Dow's size and scale should have well developed business processes and risk management practices to mitigate situations like those Dow is now dealing with. Those capabilities, processes and skills are the responsibility of the CEO and the board. That they obviously did not exist or were not respected at Dow Chemical points to a substantial deficiency in effective leadership. That deficiency has created risks that cost Dow Chemical billions of dollars and some level of unnecessary instability at the company.
This week it appears Dow's Kuwaiti joint venture has been cancelled - we remarked that Dow's foreign investments could be cancelled. (Prepare for more of this across a multitude of corporations.) The ill-planned Rohn & Haas merger is now in jeopardy because it will more than likely substantially harm Dow's credit rating and, therefore, its long term viability. (Ratings agencies just downgraded Dow this week.) A failed merger at the agreed to price will likely cost Dow substantially as well. So, regardless of the merger outcome, Dow has been seriously damaged economically. And, Dow is rumored to potentially be cutting its dividend. These failures were easily avoided.
While Dow's CEO was a regular on the media circuit, it appears he should have been spending more time managing the business. And, it appears it has only taken about two years at the helm of Dow for him to jeopardize the long term health of the company. For that the CEO earned $15 million in 2007 and probably at least that much in 2008. One thing I am quite certain of is that Dow's CEO won't be a regular member of the media tour anymore.
In cases where CEOs didn't found a company, they are simply hired stewards. And, often not very good ones at that. As we have highlighted time and again, the wealth of the company is determined by the cumulative capital of its associates. A great CEO realizes this and works to unlock this capital onto the market. For that, it is empowered employees and shareholders who should be receiving the vast majority of the wealth created at publicly traded companies. Not the CEO. That is, unless the CEO has brought a successful strategy to the organization. To believe an administrator who doesn't invent, sell, create or make anything should be given unchecked power and unheard of riches in a publicly traded company is completely ridiculous. This elitist mindset is akin to a feudal system where the creativity and labor of the repressed create wealth for their repressors yet share little of the spoils. At some point society will no longer put misplaced trust in a self-appointed ruling class that obviously doesn't deserve such unchecked control. And, definitely doesn't deserve a pass on oversight. In fact, what we see today rails against the principles this country was founded on.
Mistakes are a part of life. That Dow's CEO made mistakes is irrelevant. What is important to understand is that a well-managed organization of Dow's size and scale should have well developed business processes and risk management practices to mitigate situations like those Dow is now dealing with. Those capabilities, processes and skills are the responsibility of the CEO and the board. That they obviously did not exist or were not respected at Dow Chemical points to a substantial deficiency in effective leadership. That deficiency has created risks that cost Dow Chemical billions of dollars and some level of unnecessary instability at the company.
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