Old Family Firm Shows ‘High-Tech’ Is an Attitude
Amid all the uncertainties of a rapidly changing world, a 2-century-old company is striking off in a new direction, demonstrating that renewal and reinvention are the essence of business management in this age.
DuPont, the giant chemical company whose formal name is E.I. duPont de Nemours & Co., has invested $3.2 billion in the last year to create a joint venture with Pioneer Hi-Bred, a leading seed company, and to buy the Protein Technologies business of Ralston-Purina.
The company in one swoop established a leading position in bioengineered agriculture, a field it calls life sciences. DuPont sees the field, which also includes biologically engineered medicines and materials for clothing, shaping its future.
DuPont is building a plant genetics research facility near Des Moines that company officials hope will extend a record of inventions that already includes such household names as cellophane, rayon, nylon, Teflon, Mylar and Lycra.
Expectations are great. Life sciences will contribute a third of DuPont’s $3.6-billion net income within five years, analysts say; life sciences eventually could reach $45 billion in annual sales, as much as DuPont’s total current revenue from chemicals, synthetic fibers and the Conoco oil company.
What’s driving all the expectations is a revolution just beginning in agriculture that has implications for many industries in the next century. As important, DuPont, with 97,000 employees, is demonstrating how all companies large and small have to embrace change in these times. There are signposts for investors in the technology and in the family company’s changing management.
In agriculture, genetic technology is allowing the development of custom food crops. For example, Optimum Quality Grains, the company put together by DuPont and Pioneer, is producing corn with higher oil content. That makes for more nutritious feed for livestock, which in turn makes meat less fatty.
Optimum, which also makes a soybean oil with less saturated fat, can develop such products because its scientists isolated genes in corn and soybeans, and then accentuated or minimized those genes as needed. DuPont is also working with wheat and rice through a subsidiary in Britain.
The promise of plant biotechnology is that qualities such as taste, color, nutrition, now put in food through additives, can be bred into the crops. Biotechnology will “redefine agriculture” from a bulk business in which farmers grow crops and hope for a market to a business more attuned to varied market demand, says Sano Shimoda, president of BioScience Securities, a brokerage and research firm in Northern California.
Shimoda also foresees development of cotton plants with qualities of polyester bred into them, producing a wrinkle-resistant yarn, and materials similar to plastics grown in the earth and thus biodegradable.
Plant genetics promises environmentally “sustainable development,” says William Kirk, senior vice president for agricultural sciences at DuPont.
The business didn’t spring up yesterday. Biotech agriculture has been talked about for more than two decades, often in derision at attempts to produce square tomatoes. DuPont has worked 15 years in the field, encountering many disappointments and losses in the 1980s.
It was a different company then, an old-line chemical concern following a genteel tradition dating to 1802, when a French aristocrat founded a gunpowder business in what is now Wilmington, Del. Family members ran the company, which went from explosives in the 19th century to chemicals in the 20th, until 1971.
A diversion to buy Conoco in the early 1980s had handed a lot of company stock to Seagram Co.’s Bronfman family, but they sold their stock back to DuPont in 1993. Today, some 300 members of the DuPont clan own roughly 15% of the stock, according to a recent report in Forbes.
But wealthy families are never too genteel to notice when the business is lagging. And in 1987 the DuPonts promoted Edgar Woolard, an industrial engineer, to chairman and gave him a free hand to improve matters.
What followed over most of the next 10 years were a 37% cut in the employee rolls, elimination of layers of management, a reduction in dividends as a percentage of income, an increase in return on investment and steady expenditures of more than $1 billion a year on research and development.
DuPont sold some chemical divisions, beefed up others, particularly fibers. John Krol, a chemist, succeeded Woolard as chief executive in 1996 and last year shelled out the $3.2 billion to build up life sciences.
“The company had slimmed down, and now it was ready to go into an expansion mode,” says analyst Leslie Ravitz of Morgan Stanley.
The company has “renewed and reinvented itself,” says Alfred E. Osborne Jr., head of entrepreneurial studies at UCLA’s Anderson business school. “They’re a high-tech company now, no longer a mature chemical company managing assets.”
His use of the term “high-tech” refers to more than the obvious fact that DuPont works with technology. It means an attitude, a frame of mind for owners and managers to see the company as a mechanism for innovation and for working with customers and adapting to markets.
That’s why “high-tech” has become a descriptive term for broad stretches of U.S. and world industry in the late 1990s. Having come through the restructuring and globalization of operations that characterized the 1980s and early 1990s, the best companies in the U.S. and abroad are now adaptable instruments of change, growing as the world economy changes and grows.
That’s one reason stock markets are as high as they are. DuPont stock now sells for about $60 a share, roughly four times its price in the late 1980s when the family and Woolard began its transformation.
The price is also more than double the price--$26 a share on the present stock--at which Seagram President Edgar Bronfman Jr. sold a block of shares back to DuPont in 1993 so that he could buy MCA (now Universal Studios), a move that has disappointed Seagram’s shareholders.
Some reinventions work better than others.
James Flanigan can be reached at jim.flanigan@latimes.com
