Profiting the Crown
Chapter 1 – Poor by Nature * Natural rubber: discovered by Europeans in the “New World” * Goodyear’s discovery of mixing rubber with sulphur and applying heat (made it resistant to temperature) * Became widely used in a variety of industries in Western world; at home and in factories (6-7) * Natural rubber trees only grew in warm, wet climates – not ideal for Canada, had to import from many foreign regions (7-8) * Usage of rubber grew within Canada exponentially (8-9) * Rubber manufacturing began after First World War, mainly footwear + clothing (9) * Experienced rapid growth within the industry in first two decades (10) * Consolidated Rubber Company (1906) founded by Max Aitken, combining six leading rubber plants amalgamation (10) * American rubber companies moved into Canada – accounted for 2/3 (11) * Tariffs played vital role in market – limited imports and were aimed to increase national levels or production + promote self sufficiency (11) * Americans built subsidiaries in Canada to avoid tariff (11) * Rubber industry increasingly centralized, foreign-owned + controlled (11) * Canadian rubber industry expanded significantly prior to second world war (12) * Prewar period (WWII) + consumption of cars made rubber industry a necessity (12) * Dunlop invented air + rubber tire (1849) – very successful (13) * Rubber still imported from overseas – created very high expenses (13) * Massive scientific advancements worldwide during WWII (14-20) * Huge attempts at creating a domestic supply of rubber (15) * Had many minor successes – nothing that levelled up to natural rubber (20) * Canada still 100% dependent on foreign forms of rubber, natural and synthetic (22)
Chapter 2 – Birth of the Industry * Dec 1941 – Japan invaded + gained control of a lot of Allied rubber supply (23) * Japanese control of rubber left only enough left in other sources to accommodate for 8% of world’s needs (24) * Ottawa decided to give birth to new synthetic rubber industry – highly risky business (24) * Extensive plans created to build sufficient factories to undertake venture (24) * Prewar – no rubber consumed in Canada was synthetic * Postwar – 90% of rubber consumed synthetic (25) * Rubber industry owed to American born CD Howe (25-27) * In charge of Department of Munitions and Supply – almost dictator-like control (27) * Faced problem of lack of rubber supply – essential to Canada’s wartime participation (28) * Use of rubber for anything but wartime supplies prohibited (29) * Rubber Conservation Committee suggested scrap rubber collection (29) * Searched for opportunities of local rubber plants; not very hopeful (30) * Nicholson – proposed idea of synthetic rubber industry within Canada (31) * Widespread confusion about producing rubber industrially, seemed impossible (32) * Industry was created in Sarnia for various factors (32) * Created as Crown corporation – run + evaluated by government, for the public (33) * New methodology of large scale government intervention; Crown corporations consistent to belief (33) * CBC created, air transportation, national harbours, wheat marketing, central banking, etc. all brought under public control * 28 Crown Corporations established during war by Howe (34) * Feb. 1942 – Polymer Corporation established (35) * Not entitled to any assets – were held in the name of the Crown (35) * Faced many challenges in finding how to create synthetic rubber; had no technological knowledge (36) * Brought factors together from many industries: Dow Chemicals, Imperial Oil, Goodyear, Firestone, Dominion Rubber (37) * Goodyear, Firestone, Dominion Rubber created Canadian Synthetic Rubber Company (CSR) (37) * Structure mimicked other wartime effort industries (37) * Collection of people to run the corporation (39-41) * 1942 – set ups arranging beginning of construction (41) * Biggest problem that presented itself – still the production of rubber and material * Lack of technological knowledge (42) * 9057619733 * Anything necessary for production of rubber was a priority to the industry – held precedence over all other consumer (43) * Project delayed due to lack of resources during wartime (43) * Shortage of petroleum in North America led to officials considering other options, mainly alcohol (43) * Economic and political feasibility played a factor as well as technological (44) * Howe decided against using alcohol as base – not enough evidence to support its feasibility and reliability (48) * $50 million put in project – single most costly wartime effort with a lot at stake (48) * Change in presidency at Polymer Corporation (50) * Polymer not placed on top ranked in priorities for wartime efforts (52) * Roger Hatch played vital role in gathering materials necessary for Polymer (53) * 1943: plants were substantially completed (53) * Sept. 1943 – first producing unit begins operating without hitch (53) * Feb. 1944 – plants completed, five year task accomplished in two (53) * Represented Canada’s rapid development of industry, fast paced wartime effort (53) * Initial strategy – produce as much rubber as possible, quantity > quality (54) * Made enough to avoid shortage, and by the end of war produced enough to sustain Canada and exported to USA (54) * “Polymer… Has kept Canada in the war” (55) * Focused on large scale production of rubber to win the war (56)

Chapter 3: War and Peace * War price of building plant almost double that of peacetime (57) * Plant seen with pride for all Canadians – symbol of effort and prosperity (57) * Confusion about future of the plant in the postwar period (58) * Did not want history to repeat itself (post WWI – depression) (58) * Natural rubber expected to re-dominate the market (59) * Had many unplanned managerial problems (60) * Without a postwar market for 2/3 of capacity * Structure designed to accommodate tightly regulated wartime production * Unable to compete aggressively in free-market economy * No sector for research and development * Many people willing to volunteer in wartime returned to own niches (60) * No business strategy or corporate structure to realize objectives (60) * Arguments made to privative Polymer (60) * Efforts made to avoid post-war slump and depression – Keynesian (61) * Government intervention led to a stable economy, no downfall after war (62) * In 30 years, Canada had grown from mainly reliant on primary resources to processing goods (63) * Crown corporations sold off to private owners, only three remained – one of which, Polymer (65) * Purpose: to create a profit, Howe had a very hands off approach (66) * Benefits (66): * Create exports to leave Canada – would benefit economy * Would become cornerstone to petrochemical industry in the future * Many companies built factories in Sarnia to partner/work with Polymer (67) * USA: plants were shut down or sold off, opposite to Polymer (68) * Employed thousands of people directly and indirectly, was not sold off (68) * Shift must be made from production to product oriented enterprise (69) * 3 key elements (69) * must develop export markets for synthetic rubber * must develop a greater variety of products to meet needs of peacetime consumers + reduce cost of existent ones * must increase sales of by-products of synthetic rubber production to break dependency on staple oriented production * 1944 – research department developed (72) * Canadian economy heavily based on knowledge and science (72) * 1951 – R + D employed 100+ chemists (72) * Attempted to find a more sustainable and cheap rubber (72) * Created a better form of butyl by using oil along with it to reduce cracking and damage during winter months (73) * 1947 – government control of rubber industry ended after 5 years (76) * Polymer afraid of results of decentralization – wanted government to hold control (77) * Howe’s standpoint – would either profit or perish on its own (77) * Wartime natural rubber usage ban lifted in April 1947 * Synthetic rubber was not abandoned – consumers understood its long term security (78) * Change in market dynamics since WWII (79) * 1948-48: worst economic year for Polymer (79) * Saved by recent production of by-products (79) * Four countries producing rubber (Russia, Germany, Canada, USA) – only one capable of catering to international market needs – Canada (80) * Faced challenges from the Europeans – did not assimilate to using synthetic rubber easily, connected it to wartime shortages (81) * Another problem faced – postwar Europe did not have enough hard currency to make purchases (82) * Marshall plan – USA aiding Europe by providing them with money to make purchases to build up economy, $1.155 billion spent in Canadian industries (82) * European market grew from 3-25% in 4 years (82) * Fierce competition from natural rubber industries (83) * Korean war provided a large market for Canadian war-based products, especially rubber (83) * Supply of natural rubber couldn’t fulfill all the needs – natural rubber supply fairly inelastic in comparison to synthetic rubber (83) * Largest profit achieved 1951 (84) * Canadian companies felt entitled to being sold to first, before foreign market (84) * Board of directors had different approach – felt entitled to supply to foreign countries as they had been essential to success of postwar period (84) * Caught between pleasing foreign markets or accommodating domestic ones (85) * Chose to ignore domestic customers’ pleas and distribute their product as they saw fit (85) * Chose to follow profit over politics – adopted a business mindset (85)

Chapter 4 – The Prosperous Years * Foreign investors added to value of company (87) * Economy soared – economic grown >4.5% each year (87) * Sarnia became industrial hub (88) * Oil companies built a plant in Sarnia in proximity with Polymer (88) * 1949-69: Polymer’s prosperous years (89) * JD Barrington (Polymer’s new president) felt no need to change any strategies (89) * Technological innovation allowed for faster paced growth and production (89) * Sales almost doubled, Polymer accounted for 1/10 of world rubber production (89) * Engineers developed new methods to create rubber – added to value (90) * Change in presidency led to even more prosperity (90) * Presidency and seniority selected on ability as opposed to knowledge (91) * Hardly any changes made by Barrington – didn’t want to jeopardize success (92) * Polymer’s external operating companies terminated in 1951 (92) * Economically, managerially, and privately viable (93) * Fully controlled all facilities and aspects/steps of creating rubber (93) * All assets of the plant transferred from Crown to Polymer in 1952 (93) * Created a steady financial footing for Polymer – did not rely on government for working capital and assets (93) * Shift from production oriented industry for government during wartime to product oriented industry competing in worldwide consumer oriented market economy (94) * Trade off – government gave assets to Polymer, Polymer gave stocks and cash to government (94) * Provided Polymer with additional freedom to manoeuvres as they wish * Freedom from rigid framework of government, but still maintain public policy (95) * Financial Administrations Act – created a standard of financial behaviour for Crown corporations, ensuring standards would remain after liberals + Howe were no longer in power ( * 1950s – people had money to spend, high consumer demand leading to massive shopping malls * Critical emphasis placed on domestic as well as international demand (97) * Mass advertising lead to a world of consumption and commerce * Advertising campaign launched for Polymer to “generate goodwill for the company and its products” * Campaign helped aid worldwide ignorance and resistance to synthetic products, reinvented perception of synthetic goods to objects of modernity guaranteeing better lifestyles (98) * 50s were a time where people were looking to relieve their pent up yearning for things they wanted (due to war and depression) (100) * Levels of consumption in Canada increased dramatically * Dreams of house ownership followed by car ownership took the lead (101) * Demand/increased consumption of cars created increased demand for rubber (102) * Consumption increased domestically (almost doubled) due to fierce pricing strategy * High importance placed on R&D departments – continuous prosperity (103) * In USA – R&D for government; with no monetary incentive, it failed (104) * Polymer accounted for 3 major innovations in rubber * Could not afford to follow through with all plans – had to pick + choose R&D projects * Driving force behind R&D – profit motive (105) * Combination of economics and science/technology to create brighter future * Differences in management b/w Polymer and other corporations (Du Pont – 106) * No hierarchy in Polymer, chemists free to pursue problem of choice * Collaboration and sharing of information essential * Free exchange of ideas between chemists * Attempted to find many PhDs to help research – difficult * Still no competition for companies such as Du Pont with major R&D departments * Focused energy on bettering rubber used in automobile tires * Used technology and developments from Germany after it lost the war (107) * Found a way to polymerize rubber at a lower temperature (108) * Combined Intelligence Objectives Sub-committee (CIOS) established, responsible for getting knowledge and science out of Germany (109) * Rowzee send to Germany to investigate synthetic rubber industry in April 1945 * Investigated IG Farben’s rubber complex (110) * Came to conclusion: Polymer was already producing rubber superior to Germans * Admitted Germans excelled in a few areas * Infrastructure in Germany exceeded any research laboratory in NA * Impressed by equipment * Operation to bring German equipment and technology to Canada (111) * Found a lot of other information as well – pharmaceuticals, optics, synthetic fuel, etc. * Finally found method to produce “cold rubber” * Not ideal for carmakers and tire industry - processing was difficult and no cheaper * New method developed to create a more malleable rubber (112) * Not beneficial to Goodrich (a part of USA government subsidized program) – Pfau left and joined General Tire * Polymer hired as plant for production of cold rubber – close relationship (113) * Lowered price of final product, and was easy to handle in rubber factories * 12 years after WWII most prosperous in research and development * Polymer gained reputation in Europe as reliable and efficient (114) * June 1951 – Nicholson resigned as exec vice-president, a very significant change * Led to Polymer sending reps to Europe to ensure the company’s values would not change (115) * Lessened exports to USA to account for high European demand * Success in Europe due to three factors: * Western Europe economy in 1950 booming * Polymer facing little to no competition (116) * Innovation – increased output * 1957 – political tide turned against Liberal party, defeated in June * 1951-57 – “The Prosperous Years” (under Barrington’s presidency)

Chapter 5 – Growth and Multinationalization * Expansion abroad became growth strategy for many industries during 50-60s (119) * Emphasis placed on increasing scale, diversity, and expansion of scope (120) * Competition had increased by mid-50s – American companies in Europe * 1960 – Rowzee changed Polymer’s strategic vision (121) * Focus on preventing internal decay – more of a threat than external factors (122) * Worldwide rubber industry expanding everywhere – Polymer had to keep up * Rowzee recommended creating plants worldwide close to export locations * Cost of transportation increasing – inefficient to export (123) * No Crown corporation ever before created a plant outside of Canada – solely based on commercial purpose (no public policy implemented) * Did not have enough cash flow to build such a plant even in 5 years – needed to partner with a foreign, privately owned company – PROBLEM (124) * Rowzee – suggests private ownership of Polymer to lead to further success (125) * Many companies willing to buy Polymer – possibility of privatization * Reps in 70 nations, continuously sent high skilled reps to build relations (126) * Extreme expansion between 1944-61; considered Canada’s most successful Crown * Government change in 1957 – Diefenbaker’s Conservative gov’t in power * Raymond O’Hurley in charge of Polymer as minister of defence production (127) * Conservatives expected to sell Polymer asap after winning election (128) * Many companies willing to purchase Polymer, but government decided not to sell (129) * Rejected Barrington’s $75 million offer, and all other companies * Development of Polymer becoming essential – gov’t showed no interest in adding capital to it (130) * Rowzee’s suggestion in 1960 turned down by one member of board of directors, backed up by local unions * Polymer’s board of directors supported Rowzee – got his wish * Had to be examined by Cabinet committee (131) * Feared increase in unemployment, directly opposing promises gov’t had made (132) * Cabinet voted for privatization, had some conditions to approval (133) * Polymer not sold – decided to delay any concrete decision about privatization (134) * Another choice of joint ownership – 25% gov’t, 25% public, 50% domestic industry * Could cause many problems with decision making (135) * Decided to publicize possibility of Polymer’s privatization to see reactions * Came to conclusion about Rowzee’s plan to expand – saw it necessary (136) * Built a plant in France – Polymer’s largest export country, for $12 million (137) * Banque de Paris et Pays Bas 5% shareholder – aided in gov’t approvals * Demand for butyl rubber increased again – Polymer supply dropped from 29 to 15% worldwide * Fierce competition from Esso – growing and innovating uses of butyl rubber (138) * Duopoly in butyl rubber b/w Polymer and Esso – complicated production process limited competition * Shared know how with other industries on other types of rubber production * Decided to build plant in Belgium to produce butyl rubber – cheaper than UK (140) * Belgium gov’t offering loans to companies to build with 2.5% interest * Did not need outside shareholders to influence expansion * 1962 – Polysar International SA (PISA) established in Switzerland to market products outside NA * Roger Hatch appointed head of international marketing organization * Structure aided Polymer in saving ~$4 million a year in taxes (141) * 1952 – Germans announced new method of polymerization of ethylene, propylene, and other olefins at lower pressures * Ziegler sold his ideas (short term) for very high rates (142) * Buckler decided Ziegler’s discoveries not of direct interest to Polymer * Goodrich-Gulf found a method to create a synthetic rubber almost identical to the natural substance (143) * Advancements being made worldwide – tire business very risky * Took license from Goodrich-Gulf for catalyst to make polybutadiene (not Phillips Petroleum) * Before production, obtained information that polybutadiene was difficult to mix and extrude in factory (144) * Found a solution to create passenger tires * Growing interest in expanding company’s scope and diversifying into other areas * Even after expansion, net income did not increase as planned (145) * Sales increasing, selling prices steady * Rising costs + surplus world capacity * Investment in inventories grew * Increased cost of debt financing (146) * Net income of Polymer decreased to lowest in many years ($5.8 million) * Growth program success in long term, just not yet

Chapter 6 – Diversification and Denationalization * Trend emerged to diversify into related and unrelated fields (147) * Single businesses and specialized firm became rare * General idea that expansion and diversification led to increased profits (148) * Had to be smart about diversification, could easily lead to failure, ie, Du Pont (149) * 1980s – decreasing trend of diversification due to problems faced by many * Profit levels in rubber industry declining – excess supply (150) * Net income decreasing for Polymer – higher costs, declining price * Sales increasing, profit decreasing (151) * Initial solution – continually cutting costs to increase profit margins * Decided to expand into new areas of production to guarantee survival in 1969 (152) * Synthetic rubber industry assumed to have reached maturity overall (153) * Assumption that R&D was no longer enough * Recommendation made by Ackerman to cut costs, develop systems to upgrade products, and diversify and expand (154) * Urged diversification into related and unrelated fields for maximum profits * Goal to reach 50/50 mix of rubber-nonrubber sales within 10 years (155) * A lot of competitors of Polymer already begun diversifying nearly a decade in advance (156) * Choosing to diversify between plastic systems, housing systems, computers, environmental controls, and pharmaceuticals (157) * Decided to expand into housing systems * Bought a 13 stake in Stressed Structures Inc (SSI) and licensed technology for use in Canada and Europe (159) * Had many problems right from the start * Late delivery of key equipment delayed start-up of plant in Milton * Factory operating problems followed in 1972 when plant was built * Technology was turning out to be fundamentally flawed (160) * New objective created during 1973 – had suffered substantial losses * Demand for housing fell over the decade (161) * Fixed costs by Polymer limited downsizing possibilities – Polymer was stuck * Decision made to pull out of housing systems business after four years * Cost Polymer $20 million in losses * Decided to diversify into information-processing field * Spent $3.25 million to gain 50% share in Com-Share and expand operations to Europe * Expansion through acquisition – gain plants and markets of existing firms (162) * Overestimation of Canadian demand for Com-Share’s services * Created loss of $700 000+ in 1970; another failure * Both diversification ventures failed, created loss in rubber industry as well (163) * Many basic products had been cut in the drive of diversification (164) * 300 scientists laid off in Polymer by Rush, who had taken over presidency from Rowzee in 1971 * 1971 – structure of firm rearranged, more decentralized (165) * Lowered overall costs, but weakened communication links + compromised core competency (166) * 1971 – CDC created to prevent Canadian companies from falling into foreign hands * Government attempts to limit foreign direct investments and promote Canadian control of domestic industry * Many debates between pros and cons and effects of gov’t intervention (170) * Company owned 47% by gov’t and 53% by private investors * Idea opposed by many – shareholders could be of different heritages – not necessarily Canadian (171) * Involved taking a public company and handing it to few shareholders * Board of directors at Polymer supported being sold to CDC – were unsure however, about degree of independence that would be granted to them (172) * Initially withheld support from being sold due to vagueness in terms, but eventually supported the idea when in need of finances for diversification in 1972 (173) * Assured by gov’t and CDC that there would be limited interference * Market value had dropped, needed to sell to generate capital necessary for further diversification and expansion * Sold to CDC in July 1972, Hampson (chairman of CDC) joined Polymer’s exec committee in August (174) * Butadiene becoming increasingly expensive to produce – losing market share (175) * Decided to expand operations to allow for greater + cheaper output * Company was changing strategically, managerially, and structurally * Changed name to Polysar Ltd in 1973 to show transformation * 1974 – Petrosar established between 4 companies to produce petrochemicals on Canadian land (176) * Was a huge failure, cost Polysar millions of dollars * Investments grew, along with losses * PISA accused of fraudulent behaviour in Europe extending back to 1970s * Some execs of Polysar aware of behaviour, did nothing to stop it * Others had no clue what was going on * Matter hidden from shareholders until 1976 (178) * Government accused of having no control of its corporations – put under auditors eyes (180) * Expansion and diversification process had cost Polymer many opportunities (181) * Sales had tripled, yet profit had not increased significantly

Chapter 7 – Back to Basics * Many firms went “back to basics” (183) * Expansion into unrelated areas caused losses and drop in shortage of profitability * Lost sight of main purpose of industry – Polymer moved away from developing polymeric materials * Alberta government decided to build plants for production of ammonia, methanol, and ethylene derivatives (188) * By 1893 – Polymer once again largest rubber producer in the world * Robert Dudley – replaced Ian Rush as president (1981) * Four divisions created – basic petrochemicals, rubber, diversified products, and Asia-Pacific group (189) * Formed joint venture with China – Shanghai Gao Qiao-Polysar Company oversaw production of latex rubber * R&D departments had suffered significantly during diversification period * Shifted back from relying on others for technology to focusing on own R&D (190) * Dudley developed new type of rubber ideal for lining tires (192) * Held strong belief in R&D, increased funds year after year while downsizing other departments * Huge negative impact by Petrosar – limited potential of Polymer significantly (194) * Bought out Petrosar in an attempt to aid it * Invested a lot of money to help it grow and reach potential * NEP limited success of company * CDC changed to Polysar Ltd under new management, benefitted company significantly (199) * Many government organizations “out of control” – were expanding and downsizing without gov’t consent (200) * Many organizations privatized – Polymer kept under CDC control * CDC sold off to private owners, feared hostile takeover (203) * Bob Blair – purchased many stocks of Polysar with ultimate goal of control * Nova eventually bought Polysar at $20.31/share (207) * Many differences between Nova and Polymer (208) * Nova under heavy financial strain after purchasing Polysar * Decided to sell Polymer for financial gain (209) * Polymer sold to Bayer (Germany) by Blair in 1990 (210) * Still producing rubber, suffered losses in 1990s (211)

Conclusion * Many Crown companies accused of destroying Canadian economy * Polymer stands out – aided Canada through all its methods * Produced to aid nation – did so throughout WWII * Changed goal to producing profit shortly afterwards *