Issue Date: March 8, 2004
LEADING ADVOCATE GETS SCI MEDAL
With the award of the Chemical Industry Medal this Wednesday evening to Thomas E. Reilly Jr., 64, retired chief executive officer and chairman of the board of Reilly Industries, the Society of Chemical Industry (SCI), American Section, reinvigorates a tradition dating back to 1933.
As far as anyone can remember, SCI has presented its most prestigious award to an industry titan in the fall. This year's Chemical Industry Medal, to be presented at the Plaza Hotel in New York City, is the first of many that the group expects to give annually in March. SCI's award of the Perkin Medal to a distinguished scientist, usually presented in March, moves to Philadelphia for presentation in September in conjunction with a symposium on innovation at the Chemical Heritage Foundation.
The Chemical Industry Medal recognizes an individual whose exemplary leadership has enhanced the progress and performance of the industry.
Reilly has done just that by tackling legacy environmental issues at the 108-year-old firm his grandfather founded. More recently, he has taken a strong stance on energy and government regulations as his firm and others have tried to cope with high natural gas prices and European attempts to establish new controls on chemicals.
Though he took chemistry classes in college and literally grew up in the chemical business, Reilly is a financial guy. He earned his bachelor's degree in economics from Stanford University in 1961 and his M.B.A. from Harvard Business School in 1963. He then went straight to work for the small family-owned firm. The company's annual sales at that time were $21 million. Sales today for Reilly Industries are about $350 million.
Tom Reilly started in the industry, he says, at a time when the synthetic organic chemistry revolution was beginning to happen. World War II had helped accelerate the development of petroleum-derived chemical feedstocks instead of coal-derived ones. And Reilly Industries, along with the rest of the chemical industry, "was growing by leaps and bounds. We were building plants and going international.
"We happened to be at the right time and the right place with the right technology." And the feisty firm also had a knack for picking the right employees. Reilly credits Frank Cislak--a University of Chicago-trained chemist who joined what in 1929 was Reilly Tar & Chemical because it offered to pay him twice what DuPont offered--for putting Reilly Industries in the synthetic pyridine business and tilting the firm so that today 75% of its revenue is from synthetic-organic-based products.
"2-Aminopyridine, which Cislak developed, was the fundamental backbone of sulfapyridine. It was the first sulfa drug--discovered in 1940--and saved many lives in World War II until penicillin was developed. And so we were in one of the first synthetic drugs." After the war, other Reilly chemicals--based on pyridine and picolines--were used to make antihistamines, antibiotics, vitamins, plastic additives, rubber adhesion promoters, and agrochemicals.
"In my early days, I had one of the simplest jobs in commercial development," Reilly recalls. "We would sit around and think up interesting molecules. After our scientists would synthesize them and get an idea of what the realities of commercial synthesis were, I would run an ad just showing the structure--no boiling point, freezing point, or specifications.
"I kept a secretary busy this way just answering the phone and sending out samples. The synthetic chemical industry was a great new field, and the returns were very high because the level of creativity just exploded at that time."
REILLY MOVED INTO a general management job in 1974 and became chairman and CEO in 1990. While most of the company's growth in those days was coming from organic chemistry, it was still in the tar-refining business started by his grandfather, Peter C. Reilly. His company, Western Creosoting Co., refined tar for the creosote needed to preserve railroad ties, utility poles, and the wooden paving blocks common at the turn of the century.
But some of the tar refineries and creosote yards that P. C. Reilly operated came back to haunt the company years later as Superfund sites that were cleaned up by the U.S. government. "I've been in a position where my grandfather operated a facility in 1916 for nine months and more than 60 years later I had to recognize a cleanup liability for the entire site," Reilly says.
Others who operated at such sites were off the hook because they were all broke, Reilly explains. Reilly Industries was still in business, and so it became responsible for the cleanup. "I'm not opposed to environmental legislation," he says. "But a lot of environmental legislation was punitive, politically motivated, very costly, and not very fair.
"One of the satisfactions I have is that, by the time I retired in January 2003, we had put almost all the environmental issues behind us. It kept the company poor. But it also drove me to try to develop sound policy on this issue. That's why I got involved in trade associations. The only way you can affect policy change is in concert with other companies."
IT IS POLITICS, Reilly says, that led him to become chairman in 2002 of the industry's leading U.S. advocacy group, the American Chemistry Council (ACC). The chemical industry had been pushed hard with the formation of the Environmental Protection Agency in 1970 and the spate of federal environmental legislation that followed, he says. "I thought we in the industry were pretty naive. We had to get more politically active."
It wasn't an easy position to take, Reilly says. "Fifteen years ago, many CEOs in the industry were engineers and scientists who had a rational view of the world and a positive view of human nature." When he advocated for political action, "they looked at me like I had gone to church and stood up and said we had to get more sexually active."
But eventually, Reilly says, a generation of CEOs, such as J. Roger Hirl of Occidental Chemical and Earnest W. Deavenport Jr. of Eastman Chemical, agreed to a larger political agenda. Three years ago, ACC staked a position on energy legislation that called for increasing natural gas supplies, opening new areas now closed to natural gas drilling, and holding back growth in natural gas use by electric utilities.
"We thought we had put together a very sound policy and that it had been accepted by the government and tested with the Democrats." The test came in 2001, when rising costs for gas--used both as feedstock and as an energy source by chemical producers--meant "we had a crisis on our hands." ACC figured that its input into the national energy plan drawn up by Vice President Dick Cheney would lead "the government to do something about it."
"But again we were politically naive. We rested on our laurels, and look what it got us," Reilly says. Congress still has not passed an energy bill, and many incentives that the U.S. chemical industry hoped would enhance its global competitive positions are gone.
Another issue in which not only the U.S. chemical industry but all chemical makers stand to lose, Reilly says, is the Registration, Evaluation & Authorization of Chemicals (REACH) proposal now before the European Parliament. He considers his involvement in this European policy issue his "signature" advocacy effort at ACC.
REACH proponents take an "antigrowth, antiscience, antirisk position." Such advocates, he says, are members "of the organized left masquerading as an environmental movement. I think their position is counterproductive and very dangerous."
When Reilly was chairman of ACC's executive committee in 2001, he alerted members that the legislation would not only threaten the growth and future of all chemicals manufactured or sold in the European Community, but also would be prohibitively expensive.
He led an ACC delegation to discuss REACH with European counterparts--most of whom, he says, "still think they are operating 20 years ago" and didn't realize the power of the European Union. But now, with BASF board member Eggert Voscherau leading the European Chemical Industry Council (CEFIC) and advocating for a more competitive chemical policy, Reilly says, European industry executives are acting more decisively. "They haven't won yet. But they are making progress," he says.
Reilly has also had a hand in the development of ACC's proposed advertising program, which he hopes will "get off the ground and talk about product issues." He credits Dow Chemical Chairman William Stavropoulos--a member of ACC's Responsible Care Committee when Reilly headed it up--for getting the program as far as it has. And following the September 2001 terrorists attacks, he and Praxair CEO Dennis H. Reilley convinced ACC to make security part of its Responsible Care program to "give it teeth and validity."
He hopes that association activities like these will help midsized firms like Reilly Industries to survive. But "very few companies like us are actually doing new development research. The time involved and the investment required is greater than it ever was." Survival for midsized firms means investing instead in process chemistry "so that we can make things cheaper, and better, and faster, and more productively."
And although Reilly knows "there is a lot of new exciting chemistry out there, it seems to be happening in the very big companies or in very small companies often spun out of the universities." To give midsized companies the mass they need to invest in R&D, he expects private equity firms to play a role in the continuing consolidation of the chemical industry. And he thinks Reilly Industries might attract new capital from private investors to allow it to thrive and invest in new products, too.
Reilly recalls the heyday of the chemical industry in the late 1960s, when he'd go to the annual ACC meeting at the Greenbrier Resort in West Virginia and "the guys in the pink plaid golf pants played golf all day, cards all night, and made deals all the time. Those guys could almost just close their eyes, pick up a dart, and throw it at a globe, and wherever it would hit, they would build a $200 million plant and make a 35% return. It was great. It was our dot-com period!
"Ten years from now, this industry can be like it was back then," Reilly says. Only "it's not just going to be straight chemical innovation." By using combinatorial chemistry, nanotechnology, catalysis, and by integrating other sciences including biology and physics, the industry can look to a renaissance.
And to make that vision a reality, Reilly insists that it is "our obligation to advocate the cause of applied science. We ourselves may not benefit. It'll probably be somebody else. But our forefathers created an environment in which we could thrive. We have to create such an environment for the next people."
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