BusinessTN

During a recent tour of Kingsport's Eastman Chemical Co. campus, several Eastman employees mentioned the Holston River, which flows through the company's 858-acre compound in the middle of the city. "You can often see people fishing here," was one recurring theme as we traversed the sprawling campus, with its ever-present whiff of a photographer's dark room in the air. "I've caught trout here," said one veteran engineer, pointing to the river bank populated on both sides with industrial structures bedecked in pipes. "And trout is a very picky fish," he added.

Such attention to angling may have been in reaction to the spill that occurred here a week prior to our visit, when 160 gallons of anti-corrosive heat transfer fluid dubbed DowTherm were dumped into Holston River to relieve pressure from an overheating machine. Eastman's media relations hastened to assure the public that the spill was minor, causing no damage to humans or nature. Still, the event is a timely reminder that leading Eastman Chemical carries with it more than just the usual challenges of running a Fortune 500 public company. Beyond the constant push to please investors and the sheer scale of the Eastman operation (10,500 employees and $6.8 billion in sales last year), there's the challenge of helming a company under constant scrutiny from environmental groups and government agencies. Until recently the world's largest producer of polyethylene terephthalate (PET) (used in synthetic fibers, beverage and food containers), and still the world's second largest producer of cellulose acetate tow (used in cigarette filters), Eastman is a business that is always one explosion or spill away from months or even years of profit-sapping damage control.

Perhaps that's one reason why Eastman employees are eager to talk about the changes underway at this 88-year-old chemical giant. Under the guidance of CEO Brian Ferguson, Eastman is doing plenty to shed its image as a dirty old chemical company. In the process, Ferguson also has been leading a smaller, but just as important, reclamation project—the rehabilitation of Eastman's reputation in the Kingsport community.

His success thus far, coupled with the company's solid performance in shaky economic times, make Brian Ferguson Tennessee's CEO of the Year.

Fixtures & Facelifts

When promoted to the helm of Eastman Chemical in January 2002, Ferguson knew he was inheriting a company in crisis—and he knew that everyone else knew it, too. A self-described "lifer" at Eastman, Ferguson came on board in 1977 after graduating from Arizona State University with a B.S. in chemical engineering. The Lubbock, Texas, native spent 12 years at Eastman's Longview, Texas, plant before transferring to the corporate office in Kingsport, where he honed his managerial craft on business and strategic planning assignments. A year before Eastman Kodak decided to spin off its chemical unit (Eastman Chemical), Ferguson went to the company's Washington, D.C., office, where he became vice president of industry and federal affairs in 1994. Then he was dispatched to Eastman Chemical Asia Pacific in Singapore and to Hong Kong, where he was in charge of the company's Asian operations. Short stints overseeing the company's polymers and chemical units followed.

One look at Ferguson's biography, and one can see why the company's directors chose him as a leader in 2001. Eastman desperately needed an energetic man who understood the industry, was well-versed in management and knew the ways of the world. They also needed someone to undo the damage done to the company's community relations by Ferguson's predecessor, Earnie Deavenport. Part of the old guard, Deavenport represented what people in Kingsport call "the old Eastman way," a term loaded with history and less-than-ideal implications.

Anchoring the small upper East Tennessee city, Eastman was for decades the de facto ruling entity in Kingsport. It signed off on the decisions of charitable and business boards, political campaigns and virtually all other affairs. When walking into any board meeting, it was always clear who among those present was on Eastman's payroll. The company was the nerve center of Eastman Kodak's worldwide chemical operations, and for many decades, it was good to be in the chemical business. In 1956, Forbes magazine wrote: "Eastman Kodak stands like a mighty tripod, with one leg planted firmly in Rochester, another in Kingsport, Tenn. and a third in Longview, Texas. The most startling fact about Eastman Kodak today is that barely 28% (some $200 million) of its total volume of business is accounted for by amateur photographic products. Far more than George Eastman would ever have dreamed, the two fastest-growing segments of Kodak's business are: chemicals, which rang up $49 million last year, a 32% rise since 1954, and cellulosics..."

But by the early 1990s, Kodak didn't want to be a tripod. It wanted its chemical leg severed, a desire that created much turmoil and uncertainty in Kingsport and forever tarnished the local reputation of Deavenport. During his seven-year tenure in Eastman's top office, Deavenport laid off some 4,000 employees, a measure necessary to keep the freshly spun-off company afloat. The Kingsport community didn't take the firings well. Before Deavenport's arrival, "you had to be a pretty lousy worker to get laid off from Eastman," recalls one company veteran. Eastman had been a company one joined and expected to retire from. Also adding fuel to the fire was Deavenport's generous salary package, much higher than that of his predecessor, and his affinity for installing his friends in high places at Eastman corporate offices. One Kingsport attorney recalls advising now-Tennessee Gov. Phil Bredesen against receiving an endorsement from Davenport during his first gubernatorial campaign. "[Deavenport] was so hated here," he says, "that he traveled with bodyguards. One time, a dead dog was found in his driveway."

Thus, the first item on Ferguson's fix-it list was the very image of the Eastman CEO. Everything else was tied to it. As Ferguson went searching for a new way to involve the company in both internal and external affairs, he quickly distinguished himself from his predecessor. "Earnie didn't listen to people, even when they told him that something wouldn't work," recalls one local banker. "[Brian] listens. He pulls the troops together." In February 2002, the second month of his top-level gig, the New York Times featured Ferguson in a tongue-in-cheek profile, citing an instance when Ferguson served breakfast "to his executive underlings" aboard a plane. The Eastman CEO was described as a likable manager who "delivered steaming trays of eggs, biscuits and gravy and country ham to his vice president, a few e-business department heads and a director." Over time, the community noticed that Eastman distanced itself from direct meddling in local boards, favoring instead the appointment of retired Eastman veterans. The company kept its financial commitments, but encouraged other city businesses to step up support as well. It is fitting that Ferguson happens to be the first Eastman CEO to live outside of Kingsport, even if it's just 23 miles away in neighboring Johnson City.

Muscle & Mettle

Rehabilitating the reputation of his own office with the Kingsport community may have required a sustained effort, but Ferguson faced more immediate tests of his mettle and muscle as the new CEO of Eastman.

Perhaps in an effort to offset the Kingsport uproar over layoffs, Davenport had poured millions of dollars into numerous Eastman Chemical operations worldwide. Especially painful, in retrospect, are the millions spent on Eastman's multiple e-business startups, which vanished shortly after the dot-com bust. In 2001, in an effort to pull itself out of financial and management doldrums, the Eastman board considered a plan to split the company into two parts, separating the polyethylene business (PET) from the specialty plastics and chemicals business. Fifty-three-year old Allan Rothwell was to head the first division, while Ferguson was slated to run the second. "It's become increasingly clear to us that the two companies require different strategies for success," Deavenport was quoted as saying at the time. Upon being named CEO, Ferguson pledged to review the plan for the split and shelve it if it proved unfavorable to the company—which he did.

"New business cards were printed, and everyone knew what their positions were going to be, but we chose against the split," Ferguson recalls, sitting in the corner conference room of the company's modern headquarters.

Once he had assessed and extinguished internal management fires, Ferguson set out to chart his company's future course. He pushed for a low-cost feedstock position for Eastman through the adoption of new technologies. Time and again, he addressed conferences and investors with the same message: Improving the polyester business and capitalizing on coal gasification would raise Eastman's volume of coal-based products from 20% to 50%. (For more on coal gasification, see "In With the Old" in the Sept. 9 BTN Weekly.) Ferguson's bet on America's coal reserves evolved from an earlier concern over rising energy costs. Ferguson also went largely against the grain by betting on domestic plant construction while competitors outsourced large portions of their manufacturing operations overseas, primarily to Asia.

Large-scale divestments of Eastman's non-core assets followed. The company sold its polyethylene business to Westlake in 2006 (three polyethylene manufacturing plants and an Epolene facility in Longview, Texas, as well an ethylene pipeline). At the time, Ferguson said Eastman had "an uncompetitive ethylene position because of our older cracking facilities." Earlier this year, the company completed the sale of its European PET and PTA assets to Indorama, divesting its facilities in the United Kingdom and the Netherlands for a total of $354 million.

Action & Acclaim

Six years into Ferguson's leadership, analysts like what they see at Eastman Chemical, citing the company's "solid results" in research reports. Eastman Chemical is "making its own luck by selling money-losing polymer assets and reinvesting the proceeds in its own shares to create earnings accretion," wrote JPMorgan's specialty and commodity chemicals analyst Jeffrey Zekauskas in late April. While Zekauskas criticizes Eastman for repurchasing its own shares at not especially advantageous prices, he concludes that Eastman "is faring well in a difficult economic and inflationary environment." Other analysts single out Eastman's technology initiatives in light of its promise to deliver 40% of the company's earnings-per-share performance. (Eastman hopes to double EPS in the next five years.)

Call on anyone in Kingsport these days, and you'll hear praises of Ferguson and the fruits of his labor. "The perception of Eastman in Kingsport is at all-time high," says Tom Ferguson, owner of the Ferguson Development Network (no relation to the Eastman CEO).

Land and air cargo business titan Scott Niswonger, who himself has quite the sterling rep as a CEO and corporate leader, has strong words of praise for Ferguson. "He's got a strong team of people around him," Niswonger says. "He's well-respected. I've known a lot of corporate leaders, but Brian is not just a corporate leader—he is a good corporate citizen and corporate steward for the region. He is what I like to call the complete CEO."

Ferguson's affinity for straightforward talk has won him respect beyond the club of chemical manufacturers and local CEOs. His activism in pushing for congressional support of alternative energy projects has helped inform the alternative energy debate in America's top corporate boardrooms and political circles. He has traveled through coal-rich states, praising representatives who support clean coal initiatives. Not so long ago, Ferguson was heard complaining to a U.S. Senate committee that private companies lacked clear guidelines from the federal government to take advantage of tax credits in the old 2005 energy bill. Those concerns were addressed in follow-on legislation.

Reinvestment & Recommitment

Furthering the "new Eastman way," last year the company launched a five-year, $1.3 billion reinvestment initiative in Kingsport. As part of Project Reinvest, Eastman plans to spend $265 million a year on future expansions. Already, Eastman has launched a $1.3 million facility upgrade in Kingsport and forged a job training partnership with Northeast State Technical Community College, in part addressing the regions' workforce woes. Ferguson says the initiative is "one of the most sweeping capital reinvestments in the history of the company," and he has garnered near-unanimous support in the way of tax breaks, from the city Board of Mayor and Aldermen (BMA). As part of the package, Eastman will pay the city $6.6 million over the next 14 years instead of $28 million in property taxes, while receiving $1 million from the state of Tennessee for the job-training program. In a sign that BMA is not completely under Eastman's thumb, the board approved the measure in a 5-1 vote. Not surprisingly, though, Kingsport Mayor Dennis Phillips supported the initiative, recalling Eastman's "long dry spell of uncertainty" a few years ago. He said that approving the tax breaks made a statement to Eastman: "We want you here and stay here forever," he told Kingsport Times News last November.

Of course, Eastman will stay. And with any luck, so will its current boss. Asked whether he plans to move on to greener pastures, Ferguson responds: "You don't really expect me to answer that, do you?" The first to admit that he has made plenty of mistakes during his career, the soft-spoken chemical engineer-turned-industry captain knows full well that his work at Eastman is never finished.