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BRW Profile : Andrew Liveris (UQ Chemical Engineering Graduate)

16th July 2003

To survive in the global economy, you have to love what you do and you have to make exceptional judgments. They are two features of the world inhabited by Andrew Liveris, the president of Dow Performance Chemicals, a subsidiary of Dow Chemicals, one of the largest companies in the United States. An Australian of Greek background, from Queensland, Liveris heads a division that produces more than $US6 billion in revenue and employs 7500 staff. Some analysts regard Liveris, the manager of Dow's largest division, as the company's next chief executive. If this happens, Liveris will easily be one of Australia's most powerful business people.

In an international company, managing requires focus and breadth of understanding: focus to streamline the company's operations and connect with the market, and breadth to interpret an often chaotically complex international environment. Most of all, it requires passion. 'What makes me tick is that I love business and I love deal-making and I love the human dimension of business and I love the creativity,' says Liveris. 'That is my passion. Change is something I live with every day. I want that. I think I have that in common with much of business leadership. That is what we do, that is our job.'

Rising hostility to the phenomenon described as globalisation has meant that large companies such as Dow are routinely demonised, even depicted as economic and social despots. The attacks can be indiscriminate. In some forums, Dow has been attacked for the Bhopal chemical disaster in India in 1984, which killed 8000 people, yet Dow's only sin was to acquire Union Carbide, the company responsible for the catastrophe. In May, two women survivors of the accident and a long-time Bhopal activist seeking justice in the Bhopal case, conducted a 12-day hunger strike at the Gandhi Statue in front of the Indian Embassy in Washington. The protesters want Dow included in criminal action, an unwanted potential risk for the company. This is characteristic of much anti-globalisation feeling: an assumption that global companies form a monolith of shared responsibility for many of the developing world's woes.

The view looks very different from the other side. The world turns out to be a surprisingly constricted and difficult place for the global commercial giants. Liveris says two decades of falling inflation - in America and Europe, the economies are teetering towards outright deflation, and Japan is locked in long-term deflation - is placing severe pressure on business. 'It is a tremendously critical point. [The period of falling inflation rates has] fundamentally been a 20-year event now, since the mid-1980s, when they created a new yen-US dollar relationship, the Plaza Accord [the agreement to devalue the US dollar]. The power of the US consumer is hitting a new zenith: the Wal-Mart phenomenon, in which high-quality goods are sold ever cheaper. The value chain has been compressed and there are various parts [of it] continually looking for more low-cost ways to meet the pricing that is inherent in a deflationary structure.

'So you go for cheaper and cheaper labor. But in knowledge-intensive and fixed-asset-intensive industries like Dow's, that is hard to get. And in any case, labor is not a big [cost] component for us. Sure, cheap money helps, it lowers your carrying costs. But in our industry we have no easy pathway other than to find lower input costs.'

Profile: Andrew Liveris
Age: 48

Liveris joined Dow in Australia in 1976, and within a year was transferred to Hong Kong to start a chemical facility. He stayed in Hong Kong for seven years.

He undertook a part-time MBA and moved into Dow's marketing operations in Sydney. He left Australia in 1985 and has not been back since. In 1989, he became general manager for Dow's operations in Thailand and managing director for the Dow/Siam Cement joint ventures.

In 1992, he moved to the United States
as group business director for Emulsion Polymers for North America and was appointed general manager and vice-president in 1993 and 1994, respectively, for Dow's start-up businesses in Environmental Services. He was given his current role, business group president of performance chemicals, in April 2000.

Liveris says the scope for productivity improvements is narrowing. 'Dow Chemical today is a $30 billion corporation. We run that corporation with about 49,000 people. Ten years ago, we were a $15 billion corporation, and we ran it with roughly the same number of people.'

Faced with diminishing returns from productivity and disinflation, there is one main management option for a knowledge and asset-intensive company such as Dow. Be creative. 'I have got to tell you, it is an overused word, but it is the only answer. You have to innovate your way out of it. If you can't innovate and meet the business model requirements of the discontinuities that are out there, and handle the risk, and make the right business decisions, and invest appropriately and cheaply - moving yourself out of the depression - then you will be squeezed to the point that your survival is at risk.

'You can't count on inflation. You have got to point yourself this way. Sure, you can do patchwork strategies in the meantime; you can find cheaper ways to make your goods, you can use Six Sigma technology - which is a very powerful technology to make fewer errors - and you can hit your supply/demand cycle. In some areas, that gives you the ability to raise prices for a temporary period of time. But the generic answer is that it has to be through innovation.'
The commercial world is a much riskier place after the terrorist attacks in the United States on September 11, 2001. The effect has been deep. Liveris says uncertainty breeds volatility, and volatility, 'depending on where you are in the value chain, can be deadly'. The solution is to put in parallel business strategies - in Dow's case, particularly to protect hard assets: the company's chemical plants.
Liveris is punting heavily on the two main growth opportunities in the world economy: life sciences and China, which he describes as two strategy shifts for global companies. Never able to ignore Asia, global businesses must now concentrate more heavily on the region because of the emergence of China. But developing an Asian strategy is problematic because of the unevenness of the region. 'You can't say you have an Asian strategy. You really have got to focus yourself and say: 'What are the important [countries]?'.'

Liveris says the five top countries for business opportunities in the next four decades are Indonesia, Russia, Mexico, China and India. Three of those five are in Asia. The implication is that Asia will figure prominently in the strategy, but it must be applied at a country level. 'Clearly, China becomes your number-one priority. How you choose your second, third and fourth depends on what business model you are in.'

Liveris considers the biotechnology and life sciences industries to be experiencing permanent change, but says this is still only at the 'Model T Ford stage', early in its development. Accordingly, the risks are high, but eventually the new sciences will 'change life on this planet'.

Dow, like the other big chemical companies, will be an early, and centrally placed, participant in the life sciences revolution. Liveris clearly senses the beat of history in the scientific and business challenge. 'Between myself and our top R&D guy, and one other guy, we will be steering Dow in this direction. I think it does need an alliance structure to mitigate risk. Not just with other companies, but also universities and government institutions and the countries that are interested in investing in this. It is so early, you will only understand its impact in 10 to 15 years, and look back and say 'I recognised its emergence in the early part of this decade'.'

A once-in-a-century convergence of biology, chemistry and physics is transforming science and innovation, Liveris says. From this, unparalleled intellectual property is emerging. 'All this new science is coming out of those new interfaces: the collisions that a hundred years ago came out of maths and chemistry, and 200 years ago from the collision of maths and physics to create astronomy. This current collision, which has IT as its enabler, this is multi-interface science.'

Lessons of recent history
After the disappointments of the digital revolution, any claims that business will be transformed by new technology are customarily greeted with intense scepticism. The history of large corporations punting on biotechnology or related scientific innovation is also patchy. In the late 1990s, Novartis, AstraZeneca and Monsanto all pulled back from pursuing the generic life sciences industry positioning - initially believed to be a new form of industry convergence - because they found it difficult to create sound businesses.

But this time, the hype is almost certainly justified. From a business perspective, the critical question will not be 'Who can develop new products?' but 'What products will consumers pay for?'. The much-promised changes wrought by digitisation and the internet have begun to emerge - 20% of Dow's transactions are now conducted over the internet - but this has not necessarily led to the company making higher profits. The reason is that much of the benefit has been passed on to the consumer; it was not something for which companies could charge appropriately.

In retrospect, this is not surprising. According to the consultancy McKinsey & Company, corporate profits have tended to hold steady - about 5-6% of gross domestic product - for a century. Sudden and new ways of making money rarely occur, even after large technological advances.

Liveris expects there to be comparatively few successful biotechnology companies, just as there were few profitable dot-com companies. The greater effect will be in the way existing businesses are altered. 'Yes, there will be the Biogens and Immunex in bio-pharmaceuticals, where the consumer will see the benefit and pay for it. In other words: 'I will live longer because this drug now exists and could not have existed without DNA medicines, without gene-expression technologies'. So, the emergence of pure bio-pharmaceutical companies will be the Amazon.com equivalent.

'But the guys who are already in the game, who are in the synthetic chemical synthesis pathways to pharmaceuticals - the Pfizers, the Mercks, the Glaxos [GlaxoSmithKline], those are the guys who are putting the big bucks in research to produce bio-pharmaceuticals. When they eventually market them, they will market them as the next drug to come out of Pfizer. It is the existing channel and the existing discovery engine that will transform itself to make bio-engineered drugs that human beings will want because it will give them a longer life.'
Running a big staff does not lend itself to face-to-face contact. Liveris, who is based in Michigan, reports directly to the chief executive, William Stavropoulos, and 19 people report directly to Liveris, representing the conventional line functions and service functions of leadership. He says his task is to set the strategy and metrics, monitor accountability and track the financials and other indicators. Dow uses a balanced scorecard, an oft-used method of measurement that seeks to integrate hard financial measures with such soft measures as employee motivation and connection with customers.

Dow has only six organisational layers between the lowest employee and the chief executive. 'That means you have a wide span of control, which means you don't do the traditional 'manager managing managers' routine. So what you really have to do is push hard at leadership at all levels. The notion of a leader now is not the top person running things. The notion is that at every level of every job you exert leadership: peer leadership, group leadership, team-based leadership. All you need from a layer above you and a layer above that is alignment, and that is done through strategy and a balanced scorecard.'

The new governance era
Dow has remained relatively unaffected by the corporate governance scandals in America, but Liveris says corporate governance has profoundly changed, with boards becoming more hands-on, less like country clubs. He is getting many offers to join boards, which is a result of the greater emphasis on directors with business experience.

A second result is a greater stress on the importance of integrity. The backlash is working to the benefit of the older American corporations, which have tended to suffer from fewer abuses. Liveris says auditing is now more rigorous. 'You'd better have ethics as your backbone, because if you don't, you are going to be found out. Ethics compliance, ethics committees that report to the board directly, ethics officers, corporate auditors, who your auditors are, what sort of background they have, what are their track records - all of that has ramped up to another degree.

'If the pendulum was at one extreme before, it has probably moved away from an equilibrium point to another extreme. But you need jolting to cause the equilibrium point to move. There is probably a little bit of over-reaction, but who would have imagined two years ago that an Enron or a WorldCom would have been possible? We are in a transition mode, we have to re-earn public trust, we have to examine these outrageous salaries that people earn with no due regard to performance.'
Still determinedly loyal to Australia, Liveris says he keeps in touch with local business conditions. He believes Australian companies have been late entrants to globalisation, and have suffered from the tyranny of distance. But Australian managers, he believes, have something distinctive to offer global companies. 'There are a lot of Australians in global enterprises that have adapted and have become very impressive in their successes. Australians, as a country and individuals and business leaders, call it straight. We are straight talkers and we get it done. I think that is very valued.'

BRW, 2003.