Societe de Chimie Industrielle Webcast: A Fireside Chat with Lubrizol CEO Rebecca Liebert

Well, thanks Sean. I'll just give a little bit about my history because I think that sets the stage. I grew up on a farm in eastern Kentucky, and I like to say I learned practical engineering at a very early age: chemical engineering while we were mixing the pesticides and fertilizers for the crops; civil engineering while surveying the fields and plowing them; mechanical fixing all the equipment; electrical—we had electrical wires that kept the animals in their fences or fields; and lastly biomedical engineering as we were taking care of all those animals. We would birth the animals on the farm and oftentimes have to give them shots and other medications to take care of them. So when I went to the University of Kentucky, I knew that as practical engineering, then I became, I guess, a book engineer—a true, properly trained engineer. And there was really no question for me about graduate school or not. I come from seven generations of educators. My parents were school teachers, my grandparents, my great-grandparents, and so education was super important to us. Getting a PhD just seemed natural. Now when I started working, however, I knew I wanted to go into industry, not into academia. And I started with a company called Nova Chemicals. It's a small chemical company, and being a small company, I got to do a lot of things. I was hired as a research engineer, but we would develop new polymers in the lab, take them to the plant and scale them up in massive reactors, and then take them into the field and try them at our customers. That's the true full cycle of business innovation, production, and application at the customer. What I learned with the customers is if I could help the customer make more money, I could help Nova make more money, and I got the business bug very early on. I was blessed by some great leaders at Nova to give me opportunities to move into business jobs. I did an M&A job, sales strategy, and then took my first real commercial GM role at Nova, and from there took progressively larger GM roles. People ask me if I use my PhD education, and I really don't use the true science every single day, but I use so much of what I learned: just inquisitiveness, being curious, driven to solve those problems, a lot of planning, project management, a lot of proactivity. Those basic skills you get throughout the challenges of doing experiment after experiment, having to change things up to figure out why it's working, why it's not, and get to that scientific answer.

Yeah, I don't know, maybe because chemistry was so much of my life. I spent a lot of time with my grandmother, my grandparents, because my mom and dad were both school teachers and they had to work hard. We didn't grow up with a ton of money, and my grandmother was always doing things like making pickles—well, pickles, fermentation, and fermentation is chemistry. She was cooking all the time. I just learned so much from her, and I felt chemistry just came more naturally than the others. All the other engineering sciences are great too, but chemical engineering just seemed very natural to me.

Yeah, Nova was a great place to learn about operational excellence because Nova, for those that don't know, is basically a commodity plastics company—commodity polystyrene, polyethylene. They also sold some of those commodity monomers like styrene and ethylene. And you know, when you're in a commodity business, margins are oftentimes thin. So I learned very early at Nova that you had to eliminate waste, and operational excellence is all about waste elimination. The first time I got experience and exposure to S&OP (sales and operations planning) was at Nova. We put in great operational processes and systems and structure around how we're going to do sales and operations planning—from demand planning to production planning to inventory planning—and drove a lot of working capital improvement through those processes. Then I moved to Alcoa, as you noted, and learned about Alcoa Business System. That's where I really got introduced to the Toyota production system in a deeper way, because Alcoa sent several folks over to Toyota to learn about the Toyota production system and implemented it in Alcoa, and again branded it Alcoa Business System. And then at Honeywell, we did something very similar called the Honeywell Operating System. There, I even went deeper into strategy deployment, the X-matrix, and really driving those processes that show inputs drive outputs. And that's become really my philosophy on leadership: we have to focus on the inputs related to operations to really ensure we're going to drive the right outputs. You can look at metrics all day long, but metrics are rearview mirror indicators; they're not leading indicators. So what are those leading indicator metrics that tell you you're really changing the game? A couple of the biggest ones for me are demand planning—if you don't get demand planning right, you're going to have a lot of other challenges in your organization because demand planning tells you how much inventory you need to hold, how much raw materials you need to buy, what your production capability is going to be, what you need at warehouses, and how you're going to distribute it. It gives you such a good view on the future. Another big input is new product innovation, because if you don't have a really strong operational process around new product innovation, you won't get those new products to market in the future. So operations, I think, is critical in having true world-class operating systems that the whole organization can rally behind, understands, and they're standard enough to help employees understand what their decision rights and decision criteria are. It's hard for you to make a decision if you don't know if that's within your responsibility scope, is it within your authority level, etc. And a strong operating model can really help with that too.

Yeah, and be able to provide that.

Yeah, I'm going to go more with the transformation—maybe it's a little disruptive, but it's sustainability. And it's sustainability in this way: we all need to do it, and we're all doing it, but the reporting on sustainability is getting very, very complex. And I think it's going to disrupt and transform how we have to work together as suppliers, as customers, as industry partners, as even countries and legislations, to figure out how we're going to streamline some of this reporting. Think about it: there's European REACH, there's Korean REACH, there's Taiwanese REACH now, there's Turkish REACH, and in each case, we're having to report on it somewhat differently, which is becoming very, very complex. Now, California has passed new rules on reporting of sustainability; the SEC is considering passing new rules on reporting of sustainability. And if we don't in some way get some consistency and a common approach that we can all agree to—how do you do an LCA, a life cycle assessment? It's not consistent yet. And if we don't figure this out, all of this extra work is going to weigh down the chemical industry. I'm concerned we'll have to put so much cost, so much spend into doing this reporting that it will take money away from innovation, which I don't think anybody wants to see happen.

Well, yeah, I mean I think the number one thing you have to think about when you're leading a transformation of a company is you know what's in your core and what's not, because what's in your core is where you're really going to take the company forward and then you need to figure out how you're going to continue to evolve the rest of the organization. And a big part of leading transformation is bringing the organization along, right? People want to know the why. I really got familiar with Simon Sinek's golden circles: the why, the how, the what. A lot of companies tell the how and the what—you know, how you're going to move something around, how you're going to do a certain calculation—but really what they want to know is the why: why does the company exist, what's your purpose, what's your values, and why are you asking someone to do the work you're asking them to do. And I think once you get through that, then you can go onto the how and the what, and it makes getting that done so much easier. So, you know, coming into Lubrizol, we've had some challenges over the last several years—everyone did with COVID, the US Gulf Coast freeze—we had a couple other challenges. And so we had to talk about really what's our value, what's our mission, what's our purpose, and then how are we all going to move forward together. And once you do that, I think it really changes the discussion from not about sort of if, but it's about let's go, right? Let's move and let's make this happen.

Yeah, that's a great question. And you know, look, I learned this getting my PhD too: every experiment is not going to go the way you want, every innovation—you can dream that the innovation's going to happen, but sometimes they just don't. And so you have to realize that there is failure in innovating and accept that and make it okay in your organization to fail. You can't be critical if an experiment doesn't work or a project doesn't work. Now, what you can be critical on is people you don't learn about the failure quickly enough, you continue to work on a project way too long, you spend more money than you expected to spend even after failures are happening. So that's to your point around the timeline, I think this is where having more of an agile process can really come in handy, right? Where you say, okay, you have most agile processes are a week or two weeks—you go out, you do your experiments, and you come back and report to your manager or to the team about how it worked. And if you have two or three cycles where you're not making progress, I think you really have to step back and say, is this do we have a path to make this work or not? And if we don't, then that's where you may have to kill the project or you have to take a different attack, a different trajectory, and see if you can find a path.

Yeah, well, disruptive innovations are inherently really risky, and so I would recommend that most folks really think about them before you go at them and try to have a disruptive innovation be at least connected to something you're familiar with, either it's in the same market you've been doing business with, or maybe with a customer you've been doing business with. So you have a path to sort of to the market or to the customer that you're familiar with, because you know that there's this, you know, everyone's seen a four-block quadrant, right? Markets you know, customers you know. If you're in the, you know, let's just call it lower left-hand quadrant where you know them very, very well, that's easy. Right? You might go up or over, that gives you a step away from each of them. But if you go up to the top right-hand quadrant, often times that's called the quadrant of death because it's new markets and it's new customers and it's extremely hard for companies to make that leap.

To what I said before, know your markets better than the competition, know your customers better than they know themselves. And if you do that, I think you can make shifts away from your core quadrant into new customers and new markets, or new chemistries and the same customer, right, or new chemistries in the same market. But I wouldn't think about doing new new on everything because that's really a challenge.

Yeah, well I think those are great approaches today. M&A, of course, works — you know, sometimes you have to be able to afford the acquisition target, or some timelines and regulatory challenges could be there. But open innovation is becoming more and more acceptable and actually a way to get new innovations in quickly. Think about it — there's a lot of technology that may be valuable to a company that's in pharma, as an example, that may also be valuable to somebody that's in maybe a coating space, and they're non-competitive. So licensing technology from one to the other could be a way that you could get your hands on a technology and still not have to do an acquisition, because you can work in separate spaces and not be competitors. I think that's the way to use open innovation and bring it into your space that might also still be applicable in another space. We actually did that recently, bringing in some technology that was originally used in food — it was used in some food applications — and we're able to bring it in and use it in some of our beauty applications. The food and the beauty, they don't compete, and so the other company that we worked with on this technology has no issue with it, we have no issue with it, and it's a great partnership. It actually cuts down some of the cost of development.

Well, Lubrizol has taken the approach typically that we're local for local in the markets we serve, like India and China. So our investments in China have been to service the local Chinese market primarily. Our investments in India have been to service the local Indian market primarily. We feel that you have to be in those markets to be successful. There's roughly 1.4 billion people in each of those markets. Of course, China's a little further advanced than India is today, but I just don't think you can move at the speed needed, you can't have the relationships and connections with the governments and customers and suppliers and channel partners in those countries unless you're local. Now, some may say, would you continue to invest in China at the same pace you have in the past? I think China's growth is slowing somewhat, but they still have 1.4 billion people. Their GDP per capita is $12,000 a year — compare that to the US, which is $75,000 roughly per year. So as you think about that mid-market economy, that middle class, it's still moving up and there's a lot of opportunity for sales into that space. And Lubrizol has great products for that — products that you might buy through shampoos and soaps and beauty creams, but also products that would come, as an example, if you have your first home — you need a refrigerator, you need an air conditioner, you might buy a car — and all of those things would use Lubrizol-type products. So we want to be there for that mid-market economy, that middle class as they continue to grow and evolve in both China and India, and Southeast Asia and Latin America and Africa. We also look at China as being probably 15 years ahead of India from an evolution perspective, if you look at roads and infrastructure and housing and things like that. We recently announced $150 million investment in India to support particularly infrastructure. We have a product called chlorinated PVC — CPVC — goes primarily into piping, piping for clean water. The reason CPVC is so great for India is they have a lot of chlorine in their water for cleanliness, and we are able to help move that water around because our piping is very durable when it comes to some of those additives like chlorines, fluorines, etc. So we're excited about the opportunity for growth in India and hopefully we'll be making some more announcements about further growth soon.

It's huge, it's huge. And you think about Shanghai and Beijing — very advanced, very developed — but there's a lot of tier two and tier three cities that still need, like I talked about, refrigerators, air conditioners, construction for infrastructure and things like that. So we have not written China off at all. We believe China is going to be an economy that's going to provide a lot of growth for Lubrizol, and then India as well.

Well, look, there's always competition. I lived in China in 2008 and learned a lot about the competition and how you compete there. I think the number one thing we have to do is continue to bring those really innovative products, those leading-edge solutions, and deploy them to the market — and do it at greater speed. And that's why you can't do it from Northeast Ohio, right? I learned that when I lived in Shanghai. You cannot run a US business from Northeast Ohio or from New Jersey or from Texas. You need to be in the market with leaders and teams that you trust and know are going to drive and win. So we're really empowering our teams in Lubrizol around the world to help us grow.

Yeah, well we just finished our purpose statement, so I'm going to try to repeat it here and get it right, because it's hot off the presses. Lubrizol science delivers sustainable solutions that advance mobility, improve well-being, and enhance modern life. And we are super proud about that purpose statement because it touches what we do to the core. We spent a lot of time really thinking about each word. Because it's Lubrizol — that's all of us — our science, we're core in science, with sustainable solutions, because we've been sustainable from day one of the company. We've always brought solutions — we don't just sell a product, we sell a solution. Mobility, our core — all the transportation lubricants we do — but we also have health, beauty, home, which is a lot about well-being. And modern life — I mentioned we bring refrigerant compressors that go into refrigerators, air conditioners, and a lot of other modern things, the fluids that go in those compressors and things like that. So for us it's really about that purpose statement, and we believe it's going to resonate through the organization. Beyond that, we've talked about growth — we have a strong growth agenda. We truly believe that India, China, Southeast Asia, Latin America, Brazil particularly can deliver tremendous growth for Lubrizol over the next five years. But that's not to leave out the US and Europe and some of the more developed economies, because there's a lot of opportunity in those areas as well, with sustainable solutions and some of our truly differentiated applications and capability sets. At the core, we are a dispersion science and surface chemistry company, and if you look at everything that's around us, it's a surface. So Lubrizol's products have a long lifespan. I've used the term — maybe a little bit teased out by Elon Musk — but whether it's going to be flying cars or trips to Mars, we're going to be on your surfaces.

Yeah, everybody asks us that question, and it's a fair question. Look, EVs are here, right? And they're not going away. But we really believe there are going to be sort of a continuum of energy systems for transportation — from internal combustion to electric vehicle, pure electric vehicle, to hybrid electric vehicle, to probably hydrogen fuel cells in certain applications, and even combusted hydrogen ultimately could be something that's used with more frequency. So we're focused on how we enable all of those energy types for transportation. We've studied very closely the EV transition and the internal combustion engine demand, and we see out through 2035 still a very strong demand for internal combustion engine materials because there's such a large car park. Today there's about 1.5 billion internal combustion engine vehicles on the road — passenger cars, not heavy duty — and by 2035 there's going to be about 1.3 billion, so only 200 million cars will decline. But on top of that, the EVs are going to go up, which Lubrizol has great products for. If you think about it, most of our products are hydrocarbon-based, they're non-polar, so they're great for uses in applications that require electric and have copper and a lot of connection points. They're also great for thermal management and cooling. So we're in electric motors on the axles or wheels of EVs. We're also developing products that are used for thermal management in batteries. And we know we talked about disruptive innovation before — we've actually taken several of these products and reformulated them to do cooling of servers, so servers for like farms, for your big Amazon AWS type of server warehouse. The application that is available from these products is huge, and I think we're just sort of touching the surface of what we can be in an electric vehicle. And then further, as you think about more electrically oriented products where we could help reduce temperature, drive better cooling, more efficient cooling, more sustainable cooling.

Well, I'm going to be a little bit of a broken record — it's in our DNA, it's in our chemistry, it's been with us since day one. We continue to look at all facets of sustainability. We need our sites to be sustainable — less steam, less energy. If they use energy, it needs to be from renewable sources. We want to reduce waste. We're looking at things like when we use water to clean our reactors out, can we use less water? Sometimes we use solvents to clean our reactors or other flush oils — how do we use less of that? How do we reuse those waters and oils so that we can be more sustainable and not have to dispose of them inappropriately? That's in our factories. In sustainable innovations, we're looking at using more biodegradable feedstocks, more renewable feedstocks. We've recently launched a transformation in our Carbopol franchise — Carbopol, we invented in the 1960s, and it's been a workhorse in all kinds of products, from Purell hand sanitizer to excipients that are used to deliver pharma products into your body, to all kinds of lotions and creams. We were asked by the marketplace to deliver a product that is more biodegradable, and we have developed that — again, a breakthrough innovation. We've recently sold that to one of the major consumer products companies. So we're excited about the future and what we're doing, not just at our sites but how we're dealing with products coming into our sites and how we're innovating products that are going to go out of our locations.

Yeah, yeah, I mean for sure. If we can help the customers get more benefit from the product, then they can afford to, to your point, pay a little bit more. As an example, one of our sustainable innovations is around home care — detergent for your clothes. We can enable you as a consumer to wash cold water, which saves you the heating cost of the water every year. The estimates on saving of the heating cost can be over a thousand dollars for you every year on heating the water to wash your clothes. So if you can wash in cold water, then that's a saving. So that sustainable product may cost a tad more, but you can wash in cold water and save that money. So that's exactly how we're approaching it — how can we bring additional benefits to the market with our product.

Yeah, Berkshire has been extremely supportive of our strategy refresh, our investments for growth, the organization, and where we're taking everyone and everything. I can't ask for a better company to be part of. I have met Warren, and all I'll say is Warren's exactly what people have seen on TV and through some of the articles. He's no-nonsense, he's practical, he challenges us — he challenges us to think about business in a very structured way, and he expects a return.

Yeah, my biggest advice is build your network. I honestly didn't do that well enough, I don't think, when I was a bit more junior in my career. I always felt like I was imposing on executives' and leaders' times — they didn't have time to spend on me. Why would they want to support me or coach me or mentor me? Maybe I was just trying to not be selfish, but I don't think it's being selfish. In hindsight, sitting here where I am today, I love to support people in their mid-career or early career or late career. I get your point on mid-career — it's an honor to be able to be a mentor, to be a coach, to be someone that you can get a phone call and say, 'Hey Rebecca, can you help me with this problem or help me think through that problem?' So absolutely build your network and reach out to them and build relationships with them. So when you do need to make that call and ask a tough question or get some help, you have that relationship to make it happen.

I've known Lubrizol for so long, back to the Nova Chemicals days, because we bought products that would be used in our polymers and things like that — rheology modifiers, etc. Lubrizol was always known to be able to solve those really tough problems. When nobody else could solve a problem, Lubrizol could solve it. As a PhD surface scientist myself, the surface chemistry and the products were so near and comfortable to me — it was really a natural fit. What have I learned in my first year? I have learned that the people of Lubrizol are just exceptional, and they make this company what it is today. I've also learned that our customers really appreciate our solutions. When I meet with our customers and they talk about our employees and our solutions in the same vein — it's so co-mingled. When our customers talk about what we do, they often talk about the person and the solution together. That's a great place to be because you can really tell that the customers appreciate us.

Yeah, we don't talk specific business numbers at Lubrizol as part of Berkshire, because we don't disclose those. But suffice it to say, it's a multi-hundred-million-dollar business, and we see lots of growth opportunities for the CPVC business in India and then even beyond, in some of the other higher-growth economies that are investing in infrastructure — that are going to need clean water, fire suppression systems, and the like. We have all types of products that could be used for delivering water to your faucet or delivering water to sprinklers and other applications. So we see this as a pretty strong opportunity for growth.

Yeah, so we absolutely have had some manufacturing challenges. I think it's public — we've had a couple of fires that were not good for Lubrizol and not good for our customers. I mentioned earlier, inputs drive outputs. I think the number one thing we have to do from an HSE perspective is make sure we have the right processes and systems to ensure that these things don't happen. The inputs — you think about them: audits, have you closed your audit findings? Have you done the right proactive and preventative maintenance? Do you have good mechanical reliability and mechanical integrity programs? Are people walking around doing those Gemba walks, looking for opportunities that could be a safety hazard, that could result in something catastrophic like Lubrizol had? Safety is owned by all of us. Every single one of us have to take ownership — when we walk around, whether we're holding the handrails going up and down the steps, we're lifting a box that might be too heavy, or trying to move something that's going to be bad from an ergonomic perspective, or something that could be around our equipment mechanically or otherwise. So I think Lubrizol has learned a lot from this. We've implemented a revamped ERM system, and we've put executive sponsorship — executive leaders sitting on that panel, on that steering committee — to make sure that we continue to evolve. This is a place you can't stand still and you can't take anything for granted. I hope everyone can learn from Lubrizol's incidents and continue to move forward.

I love to — I mentioned growing up on the farm, right? So I come by this naturally. I love to spend time in nature, in the garden. I was just sharing with some of my friends that I'm taking on a challenge to grow a natural flower garden, because I've heard that if you start to grow natural flower gardens versus grass, you can get bees back and butterflies and hummingbirds and all kinds of nature back. And the world needs more bees, because bees pollinate and make sure that gardens and flowers and everything are healthy. We need all of these things. So I started this process earlier this year. It required me to get rid of some traditional grass, get the soil ready for planting the seeds. The flower seeds will be planted probably in November. You put straw on top of them, and then by the spring I should have a beautiful flower garden — a natural flower garden. I'm hoping that is what happens. I will send pictures.

Yeah, well I mentioned earlier we did a strategy refresh, and as part of that we had to look at how we could pivot some resources so that we could put the right resources on the areas that have exceptional growth opportunities while still maintaining resources on our more traditional areas. Because we have opportunities, as I mentioned, in the US and Europe as well as India, China, and other growth regions. We talked with our teams about what it would mean, how we would pivot, and how we would have resources support. The other thing is, a lot of our R&D facilities — the big, expensive ones — are in Cleveland, in the UK, we have another large facility in Spain, and we can't afford to duplicate those everywhere. So we also have to set up a system where we can really support some of the growth regions from these traditional facilities. That means making sure teams understand where they're aligned with and making sure they're working on the right projects. I also mentioned having that stage-gate process is really important, because that'll make sure we're putting the right resources on those projects that have the highest value return. I wish I could say it's just an easy answer — it's not, because you can't duplicate. We probably have three or four hundred million dollars worth of R&D infrastructure that we just can't afford to duplicate, or the time to duplicate would be way too long. So we have to use what we have, and that means we need the whole globe working together from a One Lubrizol perspective. That's one of our values, and I'm certain we can drive it. And healthy margins — everybody's had to deal with inflation, we certainly have had a lot of inflation. We had to price the inflation through to our customers, and I know they're pricing it through to their customers. We also looked at how we could drive productivity and continuous improvement to help with our margins. They're recovering — I wouldn't say they're at the healthy level we want today. I think everyone has dealt with this inflation and lower demand, but over the next several years we're going to get there.

Yeah, we're planning very similar to what was mentioned here. We think we're going to probably move a little sideways from Q3 to Q4 to Q1, and maybe see some improvement in Q2 or so next year. That being said, we're not standing still right now. We're driving our organization to think about productivity, to think about continuous improvement, to think about new ways of working, to leverage data and decision science — the ChatGPTs, artificial intelligence, machine learning. Because right now, while we're a little slow, it's the time to really get these processes and systems humming, so that when the market recovers, we'll be there to capture it.

Well, I want to thank you, Sean, for coming to Northeast Ohio and to Lubrizol for this podcast and fireside chat. And I want to thank the Lubrizol team for the first year — I can't believe I'm coming up on my first year anniversary. It's been a great year, we've accomplished a lot. And I also want to thank the society for allowing me to be part of this. I look forward to seeing everybody again soon.