As the star running back of his New Martinsville, West Virginia, high school, as well as the class valedictorian, Gregory Babe easily won a football scholarship to the Virginia Polytechnic Institute and State University. But the onerous practice schedule of a Divison 1 team ate away at his grade point average, so he abandoned football and Virginia Tech and signed up for West Virginia University’s co-op program. Alternating semesters at work and at school while earning a BS in mechanical engineering (in 1980), he landed an internship at Mobay Chemical Corp., one of the predecessors to the modern Bayer. And this time he hung around.
Today the 53-year-old Babe is president and CEO of Bayer Corp., the U.S. subsidiary of German chemicals and health care conglomerate Bayer AG, and also of Bayer MaterialScience LLC. One of the world’s largest producers of polymers and high-performance plastics, MaterialScience has been a star for Bayer, but it is closely tied to the economy. Babe gets credit for seeing the economic storm brewing in 2007 and battening down the hatches early. By the time the credit crisis set in, he had already begun streamlining the unit, reducing U.S. head count by 500. MaterialScience — which accounts for roughly 25 percent of Bayer Corp.’s revenues — saw sales tumble 27 percent in 2009, they rose almost 17 percent in this year’s first quarter.
Still, the ills confronting the U.S. chemicals industry in general can’t be cured with a couple of aspirin. In a conversation with Institutional Investor Staff Writer Julie Segal, Babe gives his diagnosis:
Institutional Investor: You’ve said that the U.S. chemicals industry has positioned itself to be globally irrelevant by 2020. Why is that, and how can it be prevented?
Babe: Let’s start with a status report. I grew up trusting the chemicals industry as a safe and reliable employer and a great career choice. The perception is different today. I don’t believe that in general communities want plants. There is a gap between what the community expects a chemicals plant to do and what we in the chemicals industry deliver [in the way of safety and environmental protections]. Communities’ concerns manifest themselves not just in chemicals companies’ not being able to obtain a permit for a plant, but also in a significant increase in regulations. What that has done in many cases is make it simpler and more palatable to just build chemicals plants elsewhere and say, “If I can get my raw materials at an advantage elsewhere too, with all of these issues here, why not go elsewhere?”
What can the chemicals industry do to remedy this situation?
First, we need to run our manufacturing, transportation and delivery systems at a world-class level. We have to do more to invest in process, distribution and employee safety, facility security and environmental protection. Our best practices are very well defined by the American Chemistry Council and have been for years in the “responsible care” guidelines, but they need to be taken to a new level. Second, we have to address head-on the public’s fear of chemical exposure. There is misinformation and a lack of proactive communication from the industry, and we often find ourselves in a defensive mode.
What do people believe versus the reality?
People believe facility operators and the industry put profit ahead of safety and environmental protection. As someone who has been in this industry for his entire career, I know that’s not the case. We haven’t been telling the story. So fear comes into play, and people start to get a picture of this irresponsible industry. We need to adopt open communication with our key stakeholders and get our message out.
Well, have America’s economic woes warmed the climate toward the chemicals industry at all?
I hope so. But you have to balance that with a trend toward much higher regulatory activity. I’m not against regulation. We as a company — as an industry — have come out fully in support of reform of the Toxic Substances Control Act [of 1976] that regulates chemicals. We think it is quite necessary. But it must be done in a way that ensures that we protect our workers and the public, but also protect this country’s innovative drive and thus American jobs. The [U.S.] chemicals industry has lost 220,000 jobs in the last two decades. And not only is a chemicals industry job lost forever, but five other jobs at small and midsize businesses go away with it. You’re talking about the loss of 1 million very high-paying, high-quality jobs specifically tied to this industry over the last decade.
Speaking of jobs, you’ve talked about the urgent need for better science education in the U.S.
Look at the demographics of the chemicals industry. We have a relatively old workforce, so we’ll have lots of engineering and science positions that will need to be refilled. If we’re going to have a recovery, and if we’re going to innovate, we’ll have to have that steady supply. At Bayer science education has been a critical focus going back to the mid-’90s when we started our Making Science Make Sense program. This involves over 1,000 science and engineering volunteers from Bayer going to local high schools and middle schools to show hands-on science through experiments to spark the interest of students in science as a career path. In recent years we’ve sharpened our focus to look at diversity in the STEM [science, technology, engineering and mathematics] fields. That’s not only the right thing to do, but if you look at U.S. demographics, there is going to be a much higher percentage of female and minority graduates coming into the workforce in the next decade. So we must get in and generate interest in those demographic groups to ensure we have a good pipeline.
What impact will Obamacare have on Bayer?
We did support health care reform, and we remain committed to it. We were deeply engaged in the discussions as health care legislation developed and will continue to be deeply engaged as the legislation evolves. However, there are some things that concern us a bit. First and foremost are the overly broad powers of a nonelected independent payment advisory board. They could enact sweeping Medicare changes without any action by Congress, and they would not be subject to any judicial or administrative review. That would be unprecedented. Also, we’re concerned about the future of early prevention and diagnosis, as with chronic diseases such as diabetes that drive a lot of medical spending. We believe the legislation really takes a shortsighted view toward preventative care, especially as it relates to the value of imaging services [such as CAT scans]. It’s probably too early to determine how all that will be affected and whether reimbursement cuts will have an impact on patient care. But it does raise concerns for us. Those kind of diagnostics and pharmaceuticals and medical device development have dramatically increased life expectancy rates and allowed patients to live more valuable and productive lives. I hope we don’t lose that. That said, we did support reform, and it’s still very early for us to assess the impact from a top-line perspective. That depends on the twists and turns the regulations take as they develop.
What impact might the U.S. financial reforms have on Bayer?
We’re anxious to find out! In general, we don’t anticipate many changes for our manufacturing business. We were most concerned about over-the-counter derivatives, but that has been appropriately managed. That will be handled differently for manufacturers than for financial firms.
You’ve worked as an executive in both Germany and the U.S. What can American CEOs learn from their German counterparts and vice versa?
The German style of management is more analytical, more thoughtful. And perhaps it involves a longer process to come to a decision. But behind that is a very clear understanding of the expectations and potential issues. That is balanced against the American management style, which is quicker to action and does not go quite so deeply into an analysis. Americans make a decision based on not only appropriate analysis but also some level of intuition. They are a little more entrepreneurial and make decisions with less information, but still make sound ones. That may be a traditional answer, but after working for 30-some years for this company, I know it to be true. That creates a very positive tension [between the American and German approaches] at Bayer and helps us make better decisions.
