Issue Date: March 10, 2008
Dennis Reilley To Receive SCI Medal
IN WHAT HAS BECOME an annual rite of spring, the American Section of the Society of Chemical Industry (SCI) will award its Chemical Industry Medal on Wednesday evening. This year's recipient is Dennis H. Reilley, who retired in 2007 as chairman, president, and chief executive officer of the industrial gases producer Praxair.
When he receives the award at the Waldorf-Astoria Hotel in New York City, Reilley will join a pantheon of executives chosen by their peers for leadership, foresight, and contributions to applied chemistry. Recent recipients include Rohm and Haas CEO Raj Gupta, Huntsman Corp. founder Jon M. Huntsman, and retired ExxonMobil Chemical President Daniel S. Sanders.
Current SCI American Section Chairman and Celanese CEO David Weidman explains that Reilley deserves the admiration of fellow CEOs for two reasons. First, Reilley helped Praxair become one of the largest industrial gases companies in the world and created value for shareholders. Second, Reilley has been and continues to be an advocate and ambassador for the chemical industry.
Today, Reilley, 55, serves on the board of directors of firms such as Dow Chemical, Marathon Oil, and H. J. Heinz Co. However, to hear Reilley tell it, he's "a simple guy who grew up in central Oklahoma" at a time when most people understood the life-enhancing benefits that the chemical industry brought to society. He predicts that the American public will eventually learn to appreciate the benefits of chemistry again. But because of the growth now under way in rapidly industrializing countries, he says, the chemical industry will be less U.S.-focused in the future.
Reilley didn't start out in the chemical business. The first 14 years of his business career were with the oil production and refining firm Conoco, which is today part of ConocoPhillips. He didn't come over to the chemical side of things until DuPont, which then owned Conoco, offered him an opportunity to run its titanium dioxide business.
And, as Reilley explains it, he only got into the oil business because he took a summer job with a Conoco pipeline field office in 1974 during his junior year at Oklahoma State University, Stillwater, where he was pursuing his bachelor's degree in finance. His bosses liked him so much that they offered him a scholarship to complete his degree on the condition that he return to work for Conoco when he graduated.
The young man was elated. "I took their scholarship money and asked my now-wife to marry me. When I graduated from school in 1975, I went to work for Conoco," Reilley says. The fact that he had no formal training in the petroleum business wasn't a problem.
THE DEMAND for oil at the time was terrific, and so too was the demand for petroleum engineers. The Arab embargo started oil prices on a ride that would take them from less than $4.00 per barrel in 1973 to $36 per bbl in 1981. On the basis of his successful summer job, Reilley says, Conoco "decided it could make an engineer out of me. From that point on, I never really had a finance job to speak of. I tended to have operations and engineering jobs in pipelines, and then jobs in refining and marketing."
He also attracted the attention of Conoco President Constantine Nicandros. While in his late 20s, Reilley served for two years as administrative assistant to Nicandros.
It was during those two years, 1980 and 1981, that Reilley had his first brush with the chemical business; his boss was cochairman of the committee orchestrating DuPont's purchase of Conoco and later helped to negotiate the sale of Conoco's petrochemical assets to Gordon Cain.
Despite his intrigue regarding the takeover by DuPont and the transactions involving Cain, Reilley wouldn't make the transition to DuPont and the chemical industry for another eight years. Meanwhile, Conoco continued to operate independent of DuPont, and so Reilley soldiered on at the oil firm, rising to the rank of vice president. But in 1989, because of the strength of his experience at Conoco and at the recommendation of Nicandros, a man Reilley counts as his mentor, Reilley joined DuPont.
Reilley went on to manage a number of DuPont businesses in addition to titanium dioxide, including specialty chemicals and spandex fiber. He was named an executive vice president in 1997 and became chief operating officer in 1999. It was in March 2000 that he made the jump to Praxair to take the reins from H. William Lichtenberger, the firm's leader since it was spun out of Union Carbide in 1992.
Although Reilley had some misgivings about leaving DuPont, "I had always been intrigued by the industrial gases business model," he says. Unlike the more traditional chemical makers, industrial gas companies invest on the basis of long-term take-or-pay contracts, he explains. Such contracts allow producers to understand the profit potential up front. Traditional chemical contracts put most of the risk on the producer, who receives no guarantee that customers will buy product for the long term.
Once on board at Praxair, Reilley helped orchestrate an era of expansion; the firm grew from $5 billion in sales and $400 million in profits in 2000 to more than $9 billion in sales and $1 billion-plus in profits in 2007. During that time, the firm's stock value grew from $5 billion to about $25 billion.
Reilley brought the Six Sigma quality management program to Praxair, and he also initiated a ranking system that handsomely compensated those who performed "exceedingly well," he says. The system also tried to aid those ranked in the lower 10% by performance. If that effort failed, Praxair helped them find other employment. "Performance; no excuses," was the mantra at Praxair, he says. And he told business group leaders they had to lead.
"I had come to conclude through my career that often the single biggest element lacking in business was leadership," Reilley says. "And leaders didn't lead because they were afraid they would be wrong. So I tried to lift the burden off the shoulders of Praxair leaders by telling them there was nothing in their job description telling them they had to be right all the time. They merely had to be right often."
In addition, "I required everyone to 'wear bifocals,'" he says. The phrase is Reilley's way of saying he could only afford to employ people who could focus simultaneously on delivering results for both the short term and the long term.
AS AN INDUSTRY LEADER, Reilley undertook a number of key responsibilities in the industry's largest trade organization, the American Chemistry Council (ACC). As chairman of the group in 2001, he oversaw the integration of the American Plastics Council, in part, he says, to pool resources with the plastics group, which had mounted a successful advertising campaign to promote the benefits of plastics.
Reilley had led an earlier ACC effort to come up with an industry-financed advertising and reputation-improvement plan. That rudimentary plan later became known as the "essential2" campaign. As chairman of ACC's Board Committee on Reputation & Communications in 2003, Reilley played a role, along with then-ACC Chairman Dan Sanders and others, in getting ACC members to fund the multi-million-dollar campaign. The package included websites, print advertisements, billboards, and television spots emphasizing the essential nature of chemicals to everyday life.
The ongoing advertising campaign, Reilley says, is not just an image-enhancement effort. "To those who say that the essential2 campaign is just advertising, I say those are the people who don't want the American public to understand the chemical industry. They are the people who want decisions to be made by regulators, politicians, or the public at large who are devoid of knowledge about the industry."
Because the public does not often consider the benefits of chemistry alongside its risks, the discussions on "inherently safer" chemistry and a carbon tax often take place in a vacuum, Reilley argues. The concept of inherently safer chemistry is well founded, he says, but it needs to undergo a risk-versus-reward analysis. Implementation costs, required resources, product prices, and the extent of the safety improvements achieved all have to be weighed in any honest assessment of alternative processes, he says.
As for his thoughts on a carbon tax that would reduce emissions of global warming gases, "I really don't have any problem if the debate about it is held with all the information on the table," Reilley says. But the public ought to know what it will cost. The debate becomes "sinister," he emphasizes, "when people try to pretend to the American public that a carbon tax will cost them nothing."
When he was a younger man, Reilley acknowledges, the industry would not have needed a campaign to reacquaint the public with chemistry. Back then, the industry was making products that people saw as novel and exciting. "We were, for the most part, an industry making new products, many of them polymer based, that were meeting needs previously unmet," he says.
Thirty years ago, for instance, plastics were an obvious replacement for metal components in automobiles, both to lower assembly and material costs and to make cars lighter and more fuel efficient, Reilley points out. As the industry has matured, there have been fewer truly unmet needs, he says.
FINDING THE UNMET NEEDS of developed economies is a daunting task that research and development spending alone cannot answer, Reilley argues. "Today, R&D is not dollar constrained. It is good-idea constrained," he says, adding that simply calling for more basic research is not the answer.
The request for basic research funds, Reilley says, "is sometimes just a code word for researchers who say, 'I don't want a timetable. I don't want objectives. I just want to play.' But sometimes you hear that request because it is real." He says it takes good leadership to discern a truly valuable research request from a fishing expedition.
During his youth, Reilley says, global competition was not what it is today. Thirty years ago, U.S. chemical makers didn't worry much about competition from China, Taiwan, Korea, or even Japan. Although the increasingly global nature of business has heightened competition at home for U.S. chemical manufacturers, it has also provided them with many opportunities abroad.
The chemical industry's experience is not unique, Reilley says, and global competition is simply what happens when any industry matures. "But I still say it is an exciting business where you can compete globally and where you can still manipulate molecules and do things that are cutting edge."
In the future, he predicts, U.S.-based chemical makers will be more global than ever and less U.S.-centric. "The business of chemistry will be alive and well," Reilley says. "And it will be better understood and more highly valued by the public than it is today."
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