Allied-Signal Inc.

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Allied-Signal Inc.

Columbia Road and Park Avenue
Morristown, New Jersey 07960
U.S.A.
(201) 455–2000

Public Company

Incorporated: December 17, 1920 as the Allied Chemical
and Dye Corporation
Employees: 150,000
Sales: $11.794 billion
Market Value: $8.238 billion
Stock Index: New York Toronto

Allied-Signal, formed from the acquisition of Signal Companies, Inc. by Allied Corporation on August 6,1985, is one of the largest industrial corporations in the United States. The company provides a wide range of products for many industries, including automobile parts, telecommunication equipment, broadcast and studio equipment, plastics, oceanic equipment, housing and construction materials, soaps, paper, commercial printing typography, agricultural fertilizers, paint, aluminum, steel, textiles, and chemicals. It also provides important services for commercial and military aerospace and aviation, petroleum production and refining companies, and the space program. The company has its roots in the chemical industry and has had experiences from its earliest days in acquiring and holding subsidiaries. It may be said that Allied-Signal, formerly Allied, was born large and has been gaining ground ever since.

The outbreak of the First World War convinced several executives in the fledgling American chemical industry that the U.S. should contest the German lead in this field. Among them were Dr. William H. Nichols, a respected chemist and President of General Chemical Company, Eugene Meyer, a publisher and financier, and Meyer’s protege, Orlando F. Weber. Meyer’s efforts bore fruit on December 17, 1920, with the formation of the Allied Chemical & Dye Corporation, a merger of five companies which among them provided the new company with four basic ingredients of the chemical industry of the day: acids, alkalies, coal tar, and nitrogen. The acids were furnished by General Chemical, founded in 1899, whose president, Dr. Nichols, became Allied’s first chairman. The alkalies were contributed by the Solvay Process Company, founded in 1881, and, like General Chemical, the leading American company in its field at the time of the creation of Allied. The Barrett Company, founded in 1858, was by 1920 the largest manufacturer of coal tar products in the U.S., while Semet-Solvay, founded in 1895, was a builder and operator of coke ovens, a byproduct of which is coal tar. The National Aniline & Chemical Company, founded in 1917, at first merely supplied aniline oil, a substance used in making dyes, but its head, Orlando F. Weber, became Nichols’ successor and moved the new company into the production of nitrogen.

Although it was Eugene Meyer’s financial genius which had created Allied, it was Weber’s personality and management style which influenced Allied’s methods of doing business for generations to come, for good and for ill. Orlando Franklin Weber was born on October 6, 1878 in Grafton, Wisconsin. His father was a secretary of the Federated Trades Council in Milwaukee and a socialist labor leader. The younger Weber, however, was drawn to private enterprise. He first opened a bicycle shop and then went into the automobile business, starting an agency in Chicago for the Pope-Toledo car in 1902. From Chicago he moved to Detroit and then to New York where he came to the attention of Meyer. Meyer put Weber in charge of the 1915 reorganization of Maxwell, an early automobile company whose name was to linger in the public mind long after the company folded, thanks to the jokes of Jack Benny. Weber followed Meyer into the War Finance Corporation during World War I and, as a result, became interested in the chemical industry. Since Weber’s National Aniline had come through the war in the best financial shape of the five companies which formed Allied, it was only natural that Meyer should turn to his young associate to run the new chemical company.

Weber, first as president then as chairman, appropriated funds for a large plant to be built at Hopewell, Virginia to fix nitrogen from the air for the production of synthetic ammonia. Ammonia could be turned into nitric acid which, when combined with the soda ash made by the Solvay component of Allied, produces sodium nitrate, a substance with an agricultural use as fertilizer and a military use as an ingredient in explosives. By the end of the 1920’s Allied was doing a thriving business making and selling basic chemicals to the rest of American industry.

Important as this achievement was, it was on the financial aspect of running the company that Orlando Weber’s personality left its most enduring mark. Weber was a mathematical genius who had a grasp of the most complicated and detailed economic theories and who could, when called upon, discuss them by the hour with no notes. He was also highly secretive, keeping vital information about the company locked up in his personal safe and sharing this information with as few people in company management as possible. He was regarded by many of those that knew him as an autocrat who refused to spend any more of his company’s money than absolutely necessary.

The beneficial consequences of this unusual collection of personality traits was that, since Weber was a strong believer in a large reserve of liquid assets, Allied was able to survive the Great Depression relatively unscathed. From 1921 through 1939 Allied had no funded debt, never borrowed from banks, and paid a dividend every year, including 1932, the worst year of the Depression. The harmful consequences of Weber’s eccentric personality were, first of all, a refusal by Allied to engage in basic research leading to new products. Weber justified this decision by maintaining that he did not want to compete with the companies which were Allied’s customers. This policy, however, left Allied with a shrinking share of the market after World War II when new chemical products were introduced. Secondly, Weber’s penchant for secrecy got him into trouble with his stockholders, to whom he refused to issue detailed reports, and eventually with the Securities and Exchange Commission which, in 1934, charged him with failing to provide enough information to allow government agencies to determine whether Allied was making or losing money. Weber justified his reticence by claiming that he needed to protect company secrets. However, this secrecy, combined with his autocracy, resulted in the fact that the highest executives in the company were not conversant with the overall operation of the company when he retired in 1935. This gap in expertise was to plague Allied for the next 30 years.

Weber’s autocracy took many forms, some petty and other significant. During his tenure, and for several years thereafter, Allied executives were forbidden to have their pictures taken for the media, forbidden to allow their biographies to appear in Who’s Who in America, and forbidden to take part in meetings of trade associations. More significantly, lateral communication between executives within the company was made cumbersome. If, for example, the plant manager for ammonia wished to speak with the plant manager for soda ash, then each manager had to ask permission from their respective vice presidents in order for the conversation to take place. The vice presidents, in turn, would have to ask Weber. Weber himself could make this system work because he was the original guiding spirit of the company and consequently knew where each piece of the mosaic of company operations fit. When he left, however, Allied’s corporate bureaucracy remained in place without anyone of Weber’s talents to organize all the pieces.

Weber himself was the cause of this knowledge vacuum, as it were, at Allied. In order to keep Charles Nichols, son of the scholarly Dr. Nichols, and the Solvay family from taking control of the company, Weber put Allied in the hands of accountants. These accountants knew little of the chemical industry but were, according to Forbes, the next three chairmen of Allied: Henry Atherton, Fred Emmerich, and Glen B. Miller.

During their term of office, from 1935 to 1959, Allied made money during World War II because basic chemicals were essential to the war effort, but its plants became obsolete. In 1935, under the chairmanship of Emmerich, Allied borrowed $200 million to modernize its plants. Emmerich found himself unable to update company policy, however, because division heads had acquired complete autonomy. No vice president could make any decision without the concurrence of every other vice president.

Glen B. Miller, Emmerich’s successor, created the jobs of research vice president and marketing vice president, positions which had not existed at Allied previously. The company continued to drift without any coherent company policy or long term strategy, however, because of the advanced age of its management. Kirby H. Fisk, who had experience in insurance and finance, was put in charge in 1959 and arranged a merger with Union Texas Natural Gas in 1962. Fisk then died of a heart attack, and Allied’s board could not agree on a successor. A troika emerged: Chester M. Brown, who had a background in operations, became president and chief executive officer; Harry S. Ferguson, the accountants’ champion, became chief administrative officer and chairman of the executive committee; and Howard Marshall, head of Union Texas before the merger, continued to run the petroleum concern but now with a strong voice in Allied’s boardroom. Since there was no agreement as to who should be chairman of the board, the position was left vacant. Finally, Frederick Beebe, a member of Allied’s board representing the interests of Eugene Meyer (Weber’s mentor), set in motion the complicated legal machinery which reorganized the board of directors and brought in John T. Connor, a former Secretary of Commerce under Lyndon Johnson, to be president in 1967 and chairman of the board in 1969.

The accession of Connor marks the beginning of Allied’s recovery. Connor found that Allied showed earnings on paper during the terms of his predecessors by means of unorthodox accounting methods, all perfectly legal but masking the fact that Allied had slipped from first to sixth place in the American chemical industry. In the twelve years of his involvement with Allied, Connor improved the corporate staff by hiring his own people, appropriated larger expenditures for the company’s more profitable businesses, like oil and gas, and moved the company away from its orientation to basic chemicals and toward intermediate and end products which utilize chemicals.

In May of 1979 the current Chairman of the Board, President, and Chief Executive Officer, Edward L. Hennessy Jr., arrived on the scene to complete Allied’s recovery and turn it into Allied-Signal, one of the most dynamic and promising corporations in America today. Whether by accident or design, Allied’s board chose a leader whose personality and abilities are similar to those traits of Orlando Weber’s which proved beneficial to the company. Like Weber, Hennessy is an expert at mathematics, careful with corporate assets and decisive. Unlike Weber, however, Hennessy is direct and explicit rather than secretive (though at times somewhat brusque) and, more importantly, devoted to the research and development which Weber shunned.

Since taking charge, Hennessy has directed Allied to the forefront of scientific and technological advances, sometimes at the expense of the chemical business conducted by Allied at the time of its formation. In September 1979, for instance, Allied discontinued its operations in coke, coal, and paving materials, selling its paving materials business, its Detroit, Michigan and Ashland, Kentucky coke plants, and two coal mines. Hennessy followed the lead of Connor in this policy, who had sold off the Barrett Company in 1967. These moves were prudent, since more money could be made in other areas, but they so changed the nature of the company’s business that it is misleading to think of the modern Allied-Signal as primarily a chemical company.

Hennessy’s positive contributions have been largely in the area of acquiring high-tech businesses: Eltra in 1979, Bendix in 1983 (as a result of that company’s ill-starred attempt to take over Martin Marietta), and Signal Companies, Inc., in 1985. Allied-Signal’s business is now conducted in these three segments: aerospace/electronics, automotive, and engineered materials. In 1985 the aerospace/electronics segment accounted for 39% of Allied-Signal’s revenues, the automotive segment for 27%, and the engineered materials segment for 22%.

In 1985 Allied-Signal lost $279 million, the first loss in the company’s history. This loss is attributed by Hennessy to the establishment of The Henley Group, Inc., a company formed from all of Allied-Signal’s businesses outside the three business segments mentioned above, and to restructuring the bureaucracy of the company to complete its modernization. In spite of this loss, sales in the aerospace/electronics segment rose 27% in 1985 and edged up 1% in the engineered materials segment. Sales in the automotive segment (components for brake systems, air and fuel filters, turbo-charging equipment, and spark plugs) declined by 4%.

Allied-Signal is such a large and diverse company that it appears to be in no danger of further financial difficulties. The company’s reorganization and acquisition of other large firms in order to diversify its product line seem to be complete. Only time will tell whether Hennessy’s wish to make Allied-Signal one of the leading scientific and technological companies in the world in the field of aerospace and electronics will come true.