2030 Willard H. Dow Center
Midland, Michigan 48674
Telephone: (989) 636-1000
Toll Free: 800-422 -8193
Fax: (989) 636-1830
Sales: $27.8 billion (2001)
Stock Exchanges: Amsterdam Bavarian Berlin Brussels Chicago Düsseldorf Germany Hamburg Hanover London New York Pacific Paris Stuttgart Switzerland Tokyo
Ticker Symbol: DOW (New York)
NAIC: 325131 Inorganic Dye and Pigment Manufacturing; 325188 All Other Basic Inorganic Chemical Manufacturing; 325211 Plastics Material and Resin Manufacturing; 325611 Soap and Other Detergent Manufacturing; 325612 Polish and Other Sanitation Goods Manufacturing; 326122 Plastics Pipe and Pipe Fitting Manufacturing; 326130 Laminated Plastics Plate, Sheet, and Shape Manufacturing; 326150 Urethane and Other Foam Product (Except Polystyrene) Manufacturing
To constantly improve what is essential to human progress by mastering science and technology.
1897: Herbert Dow founds The Dow Chemical Company.
1900: Dow and Midland Chemical Company merge.
1906: The company produces their first agricultural product.
1933: Dow begins extracting bromine from seawater.
1935: Dow enters the plastics business.
1937: Dow is listed on the NYSE on June 26.
1942: Dow's first international expansion begins with Dow Chemical Canada, Ltd.
1943: Dow and Corning Glass merge to form the Dow Corning Company, specializing in silicone products.
1952: Dow establishes Ashai-Dow in Japan, its first subsidiary outside North America.
1953: Saran Wrap becomes a household product.
1964: Dow exceeds $1 billion in annual sales.
1968: Ziploc bags are test-marketed.
1970: The company introduces an automotive product line.
1972: Dow introduces the insecticide Lorsban.
1973: Dow becomes the first foreign industrial company listed on the Tokyo Stock Exchange.
1989: Dow and Eli Lilly form DowElanco, a joint venture to produce agricultural products.
1996: Du Pont Dow Elastomers, a Dow-du Pont joint venture, begins operations.
1997: Dow buys Eli Lilly's share in DowElanco.
1998: DowElanco is renamed Dow AgroSciences, and the DowBrands unit is sold to S.C. Johnson & Son.
1999: Dow announces plans to merge with Union Carbide.
2001: The Dow-Union Carbide merger is finalized.
To say that The Dow Chemical Company is a very large chemical company is an understatement. At the end of 2001, Dow took over du Pont as the largest chemicals company in the United States. At last count the company offered more than 2,000 different products. Approximately half of Dow's income comes from basic chemicals, but plastics, specialty chemicals, consumer products, and pharmaceuticals are also important to the company.
The Early Years
Herbert Dow began his career around 1890, when he convinced three Cleveland businessmen to back his latest project, which involved the extraction of bromide from brine. Dow's idea was to extract the huge underground reservoirs of brine, souvenirs of prehistoric times when Lake Michigan had been a sea. This brine was being used for salt, but Dow was determined to distill bromides and other chemicals from it. His first venture, called Canton Chemical, failed and was superseded by Dow Chemical.
Dow's use of an electric current to separate bromides from the brine was revolutionary. He was experimenting with electrolysis at a time when the electric light bulb was still viewed with suspicion. (At the time, President Harrison refused to touch the newly installed light switches in the White House for fear of electrocution.) However, Dow constructed primitive cells from wood and tar paper, and began producing bromides, as well as bleaching agents, for another fledgling company by the name of Kodak.
In the first years of this century, Dow began to sell his bromides abroad, but the Deutsche Bromkonvention, a powerful group of German bromide producers, declared an all-out price war against Dow Chemical. German and British bleach makers (bromide is used in bleach) reduced the price of their product from $1.65 to $.88 a pound in the United States, which was less than cost. Dow's plants depended on a price of $1.65 in order to make a profit. While other American bleach makers closed for the duration of the price war, Dow went deeper into debt and fought for his share of the domestic and foreign markets. One of his successful tactics was to purchase the imported bromide that the Germans were selling in New York at a price below cost, and then resell it in Europe where the price of bromide was still $1.65 per pound.
Resilience through War and Depression
After the bromide war came World War I, which, among other things, ended German domination of the world chemical industry. The German naval blockade forced American industry to turn to American chemical makers for essential supplies. Dow was pressed into the manufacture of phenol, used in explosives, and magnesium, used in incendiary devices. At the time these two substances had limited use outside of munitions, but they were later to play an important role in the development of Dow Chemical and the chemical industry in general. Phenol would become a key ingredient required for the manufacture of plastics, and magnesium would make aviation history.
After the war, Congress protected the fledgling American chemical industry by imposing tariffs, so that the country would not become dependent on foreign chemical manufacturers again. By 1920 Dow Chemical was selling $4 million worth of bulk chemicals like chlorine, calcium chloride, salt, and aspirin every year. By 1930 sales had climbed to $15 million and the company stock had split four times. Before the stock market crashed in 1929 the price per share had climbed to $500.
Dow's success drew the attention of du Pont, which wished to acquire the Midwestern bromide manufacturer until Herbert Dow threatened to leave the company and take his engineers with him. Without Herbert Dow's leadership and ingenuity the company was not regarded as worth the price of purchase and du Pont subsequently withdrew its offer.
Herbert Dow died just as the Depression began and was replaced by his son Willard. Willard Dow, like his father, considered research, as opposed to production or sales, the key to the company's future. Despite the state of the economy, Willard Dow approved expenditures for research into petrochemicals and plastics. The company's product line expanded to include iodine, ethylene, and materials to flush out oil from the ground. A new plant was constructed that would extract bromine from seawater. There was also a rumor on Wall Street that Dow's new method could extract gold from the seawater. The rumor turned out to be true. However, for every $300 worth of gold, $6,000 worth of bromine could be recovered.
World War II: Depression-Era Strategies Pay Off
During World War II, Dow Chemical's new research resulted in handsome rewards. Even before America's entrance into the war, Dow had started to expand in preparation for future hostilities. One of its first wartime contracts was with the British, who desperately needed magnesium. Dow produced some of this metal at its new plant in Freeport, Texas, which extracted magnesium from seawater. Dow later supplied the metal to the United States and even shared its patented process with other companies. In 1943, Dow and Corning Glass formed Dow Corning, a company that manufactured silicone products for the army. The company later expanded into civilian markets.
Before World War II the potential value of magnesium in the manufacture of airplanes had gone unnoticed, and during this time Dow Chemical was the only U.S. magnesium producer. Yet even with a monopoly on the metal, the company lost money on its production. This was typical of Dow Chemical at that time; it often invented a product and then patiently waited for a market. During the war, Dow produced over 80 percent of the magnesium used by the United States, which later led to federal investigations into whether or not Dow had conspired to monopolize magnesium production in the country. The U.S. press, however, sided with Dow and eventually the charges, which had included accusations of a conspiracy with German magnesium manufacturers, were dropped.
Besides manufacturing magnesium the company also made styrene and butadiene for synthetic rubber. During World War II the Japanese had conquered the rubber plantations of the Far East and soon this commodity was in short supply. Due to the fact that Dow had persisted in plastics research during the Depression, it was at the forefront of manufacturing synthetic products, including rubber. Besides making styrene and butadiene, it molded Saran plastic, now known as a food wrap, into pipes, or had it woven into insect screens to protect soldiers fighting in the tropics.
After the war the company had to adapt to the postwar economy. One of management's concerns was that Dow Chemical had placed such a strong emphasis on research and development in the past that it sometimes ignored the fact that it was supposed to be making profits. The Marketing and Sales departments were reluctantly increased. Said one man employed at the time, "You got the feeling that Willard looked on sales as a necessary evil."
Despite the fact that Dow had to share trade secrets with its competitors during the war, it ranked as the sixth largest chemical company in the country and was well positioned to take advantage of the increasing peacetime demand for chemicals. Its product line was extensive and included chemicals used in almost every conceivable industry. Bulk chemicals accounted for 50 percent of sales and plastics accounted for 20 percent of sales, while magnesium, pharmaceuticals, and agricultural chemicals each accounted for 10 percent of sales.
Dow expanded significantly during the postwar period, going heavily into debt in order to finance its growth. The man who presided over this expansion was Willard Dow's brother-in-law, Lee Doan (Willard Dow had been killed in a plane crash). One of Doan's first tasks was to reorganize the company and make it more customer-oriented. Willard's and Herbert Dow's tenures had been previously described by insiders as "capricious." The emphasis now was on long-range planning.
In the year of Willard's death, 1949, sales were $200 million, but ten years later they had nearly quadrupled. Products such as Saran Wrap began to make Dow a high-profile company. Dow's growth surpassed that of its competitors, and the company was soon ranked fourth in the industry. The company's plants had previously been located in Texas and Michigan, but during the 1950s important production centers were built elsewhere. Foreign partnerships like Ashai Dow in Japan were formed, and the company expanded its presence in the European market.
Restructuring, Growth, and Controversy
Dow began the 1960s with a change of leadership. Ted Doan succeeded his father and, with Ben Branch and Carl Gerstacker, reorganized the company. Communication had become a problem because of Dow's vast size, so the company was broken into more manageable units that could be run like small businesses. Marketing, however, became more centralized. The management liked to think of their company as democratic, with overlapping lines of responsibility. The structure of the company was deliberately arranged so that employees would use their own initiative to invent new products and to manufacture existing products at a lower cost. The strategy worked.
In 1960, Dow purchased Allied Labs, thus entering the world of pharmaceuticals. Also in the early 1960s, Dow Corning began collaborating with two Texas plastic surgeons, Frank Gerow and Thomas Cronin, on silicone breast implants. This venture would spell trouble for Dow Corning and its parent companies, some 30 years later.
Throughout the 1960s, Dow's earnings increased approximately 10 percent each year. Among the company's hundreds of products, however, one began to receive an inordinate amount of publicity--napalm. Beginning in 1966 the company became the target of anti-Vietnam War protests. Company recruiters were overrun on college campuses by large numbers of placard-waving students. Dow defended its manufacture of the searing chemical by saying that it was not responsible for U.S. policy in Indochina and that it should not deprive American fighting men of a weapon that the Pentagon thought was necessary. Critics charged that the gruesomeness of the weapon made it imperative for the company not to cooperate with the government. Right or wrong, the public outcry against Dow demoralized a company that wanted to be associated with Handi Wrap rather than with civilian Vietnamese casualties.
The Troubled 1970s
At the beginning of the 1970s, Forbes magazine predicted that Dow would have trouble growing because of its indebtedness. In 1974, however, the same Forbes reporter was subjected to criticism by CEO Carl Gerstacker because Dow had a record year. The oil embargo benefited Dow since it had its own petroleum feedstock with which to manufacture its various specialty chemicals; its competitors could not find the necessary petroleum. Noted Gerstacker: "Price wasn't the problem in '74; it was availability." Dow increased the price of many of its chemicals and its earnings increased, despite a strike in its hometown of Midland, Michigan. After the six-month strike, Dow gave the strikers a 10 percent bonus and gave each pensioner $2,000 worth of bonds. Company stockholders did not mind management's sudden display of generosity; that year they received a 30 percent return on equity.
The year 1975 was followed by an oversupply of petrochemicals and a business slowdown, and the company's earnings began to slide. Since the company was doing almost half of its business overseas, an unfavorable rate of exchange added to the above problems.
By 1978 a change of leadership was deemed necessary; Gerstacker's retirement from the board of directors was the end of an era. Carl Gerstacker's management strategy was, "you should have as much debt as you can carry." During recessions and slowdowns, borrowed money was used for research and development as well as plant expansion. He was an administrator in the tradition of Herbert Dow, but the moves that had catapulted Dow to a position of leadership in the chemical industry seemed unwise in the business climate of the late 1970s. P.F. Oreffice, who Gerstacker had referred to as "a little old lady in tennis shoes" because of his conservative fiscal policy, became president and CEO.
Recession and Recovery: The 1980s
Soon after his promotion, Oreffice reorganized Dow as most of his predecessors had done after their appointment. These frequent reorganizations were less a testimony to the inadequacy of the previous organization than an admission that the company was outgrowing previously successful arrangements. This time management was reorganized on a geographical basis, since Dow had plants all over the world. In 1980, the year of the reorganization, sales exceeded $10 billion for the first time.
In the early 1980s a pattern of write-offs that depressed earnings began to emerge. In 1983 the write-off of two ethylene plants and a caustic soda plant caused earnings to drop 16 percent. Ethylene, a lead additive that prevents knocking in automobile engines, had been an important product for Dow at one time. In 1985 earnings fell 90 percent from the previous year as additional ethylene plants were closed.
Another factor that depressed 1985 products was the decrease in price and demand for basic chemicals. Dow derived 50 percent of its income from commodity chemicals that are sold by the ton. Foreign competitors, Arab chemical companies in particular, invaded the American market in the same way that Dow once invaded the European bromide market. To make matters worse, the market for commodity chemicals is sensitive to world economic conditions. Dow's position as an American company complicated matters further. When the dollar was strong, as it was in 1984 and part of 1985, the company's exports were harder to sell and its foreign earnings, when converted to dollars, were smaller.
In 1981, Dow purchased Merrell Drug, thus expanding its Pharmaceutical division. With the purchase Dow assumed liability for Bendectin, an antinausea drug that was blamed for birth defects. Despite the fact that Dow won practically all law suits (independent studies proved no connection between the drug and birth defects), the cost of continuing litigation forced the company to take Bendectin off the market.
In 1984, Dow purchased Texize, which boasted a strong line of detergent products, from Morton Thiokol. Research spending remained at almost 90 percent of cash flow. Extra-strong ceramics and plastics for the electronics industry are among the numerous specialty chemicals that Dow hoped would account for two-thirds of its sales in the 1990s. The company still placed a premium on innovation, however, and stated that it anticipated placing 15 to 25 new products on the market each year. However, some felt that the expansion into pharmaceuticals, specialty chemicals, and household products, required a new approach to management. According to an analyst with Kidder and Peabody, "If you're running a monolithic chemical business, management is the same across all products. Now they're going to have hundreds of small businesses to manage."
The company appointed a new chairman of the board, Robert Lundeen, and launched a new ad campaign, in which working for Dow was equated with "doing something for the world." Eager to rid itself of the adverse publicity surrounding topics such as Vietnam and alleged environmental abuse, Dow actually supported an increase in the Environmental Protection Agency's budget and a strengthening of rules regarding hazardous waste. This marked a significant philosophical turnaround for a company that had argued against a ban on dioxin in the 1970s.
Despite its changes in management, however, Dow was hurting in 1985, as it failed to recapture market share lost during the 1980 to 1982 recession. Profits tumbled from $805 million in 1980 to $58 million in 1985. Frank Popoff was promoted to president and CEO from his position as head of Dow Chemical/Europe. Largely on the strength of Popoff's decisions, the firm improved marketing and sales of value-added products, which commanded higher prices. Dow began to win market share in this higher-margin area as it increasingly concentrated on finding new applications for existing products.
The company's efforts found a ready-made market in the auto industry, which was in the midst of a campaign to increase efficiency and cut costs. Dow concentrated on other durable sectors as well, like appliances, housewares, and electronics. It also looked into packaging and the recreation and healthcare industries. Since Dow already made so many plastics, chemicals, and hydrocarbons cheaply, increased sales of these products at higher margins offered an immediate hike in profits. This strategy was immediately successful, and the company received a further boost when the U.S. dollar began to fall, making it easier for Dow to sell against German companies and other competitors.
Oil prices fell in 1986, further feeding Dow's recovery. With the dollar continuing to fall and the world economy humming, the spread between raw material costs and final prices expanded until the firm's plastics business was making a record 25 to 30 percent on sales during mid-1987.
Dow continued to diversify through acquisition, but tried to concentrate on firms with a base in chemicals, paying special heed to firms with technologies or distribution systems deemed not practical for Dow to develop internally. A joint venture in agricultural chemicals, called DowElanco, was begun with Eli Lilly. Dow acquired 39 percent of Marion Laboratories, a pharmaceuticals firm, for $2.2 billion, then joined it with Dow Merrell, making it a public company with a 67 percent Dow stake.
By 1988 commodity chemicals accounted for just 53 percent of the firm's $13.3 billion in sales. Its move into pharmaceuticals was proving to be a success, with $1.1 billion in sales a year. Its star drug was Seldane, an antihistamine with sales that were reaching hundreds of millions of dollars. In 1989, Merrel Dow's Pharmaceutical division merged with Marion Labs to form Marion Merrel Dow, in which Dow had a 71 percent stake. Total Dow sales for 1989 reached $17.6 billion, an increase of $7 billion over five years earlier, with profits up to $2.5 billion.
The 1990s and Beyond
In 1990 the world economy headed into recession. As in past recessions, the chemical industry, plagued by overcapacity, began a price war and began cutting output. Dow was the leading low-cost producer of commodity chemicals, hydrocarbons, and plastics. Rather than cut capacity, Dow continued to produce chemicals at a lower profit margin in the hopes of keeping its market share and driving out weaker competitors. Profits fell, but the company maintained its position in the marketplace; even du Pont was forced to cut production of polymers.
The Persian Gulf War temporarily caused the price of oil to rise, further hurting Dow. When the war ended, the slowdown in the chemical industry continued. Many in the industry believed that it was just another cycle in a cyclical industry. Frank Popoff, however, maintained that the slowdown represented a more fundamental shift in the industry, one that was eroding the advantages of bigger firms. The strategy, Popoff felt, was now to be as lean and fast as small firms while maintaining an R&D advantage.
Despite these beliefs, Dow was forced to build new plants for commodity chemicals when a Canadian supplier decided to become a competitor. Dow began building ethylene plants in Alberta, Canada, and Freeport, Texas. Even after 40 years in Asia, sales there still accounted for less than 10 percent, while European sales accounted for 31 percent of total sales. But with Europe mired in recession and European sales slowing, Dow began pushing into Asia again, building a petrochemicals plant in China, where it enjoyed an expanding polyurethane business. Though its growth had been slowed by the downturn in chemicals, Dow had nevertheless reduced its dependence on commodity chemicals from 80 percent of sales in 1980 to 45 percent in 1992, making it one of the world's most diversified chemical firms.
With success came growing controversy. Starting in the early 1980s, Dow Corning faced questions and lawsuits regarding the safety of its silicone breast implants. Many women claimed to have developed autoimmune diseases as a result of silicone leakage from the implants. Faced with many individual lawsuits, as well as class action suits, Dow Corning filed for Chapter 11 bankruptcy protection in 1995, and settled with breast implant recipients for $3.2 billion. Dow, however, as a 50 percent shareholder in Dow Corning, was named in many individual lawsuits. Both Dow and Corning (the other 50 percent shareholder) were still attempting to reach a settlement of these suits in 2002. Interestingly, as of 2001, with over 20 independent studies done, no causal relationship between silicone breast implants and autoimmune diseases (or cancer) has been established.
Another controversy erupted on August 4, 1999, when Dow announced plans to merge with Union Carbide, one of the world's leading manufacturers of polyethylene plastics, and a pioneer in the petrochemical industry. The announcement drew fire from various groups, including Dow shareholders. At issue was Union Carbide's reputation, and possible continuing liability, following the Bhopal gas leak disaster in India ("The world's worst industrial accident"). Plans for the $11.6 billion merger nevertheless moved on. To receive clearance from the Federal Trade Commission (FTC) and international regulators, Dow agreed to divest itself of a number of polyethylene plants worldwide. The FTC granted approval for the merger on February 5, 2001. Union Carbide became a wholly owned subsidiary of Dow.
Throughout the 1990s and into the new millennium, Dow continued to reinvent itself through sales and acquisitions of various assets. In 1995 Dow sold its stake in Marion Merrel Dow to Hoechst for $7.1 billion. In 1998 its consumer products subsidiary, known as DowBrands, was sold to S.C. Johnson & Son. DowBrands included the Home Food Management unit, responsible for familiar names such as Ziploc and Saran Wrap. The second DowBrands unit, Home Care Products, made products such as Spray 'N Wash and Fantastik. Dow purchased ANGUS Chemical from TransCanada Pipelines in 1999. In 2000 it acquired General Latex Chemical Corporation and Flexible Products Company, both manufacturers of foam products. Another foam business, Celotex Corporation (makers of foam insulation) was purchased in 2001. The same year Dow expanded its agricultural product line by acquiring the agricultural chemicals arm of Rohm and Haas.
The recession that began in late 2001 did not spare the chemical giant, and Dow announced a workforce reduction of 8 percent. Dow seemed to bounce back with stronger earnings at the start of 2002. In June 2002, Dow was awarded the National Medal of Technology "for the vision to create great science and innovative technology in the chemical industry and the positive impact that commercialization of this technology has had on society," according to the official citation.
Principal Subsidiaries:Compañía Mega SA (28%); Dow AgroScience; Dow Automotive; Dow Corning Corporation (50%); du Pont Dow Elastomers LLC (50%); EQUATE Petrochemical Company K.S.C. (45%); Mycogen Corporation; Nippon Unicar Company Limited (50%); Petromont and Company, Limited Partnership (50%); Total Raffinaderij Nederland NV (45%); UCAR Emulsion Systems; Union Carbide; UOP LLC (50%).
Principal Competitors:BASF AG; Bayer AG; du Pont; BP Chemicals; BP; Eastman Chemical; Novartis.
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Source: International Directory of Company Histories, Vol. 50. St. James Press, 2003.