The young Sullivan had just discovered that, after three summers working at the family business in the late 1970s, he was being paid $2.65 an hour compared to the $4.50 an hour earned by other recently hired workers.
Tom Sullivan, chairman and former president and CEO of Medina-based RPM International Inc., believed, like his father before him, that sons should start at the company by sweeping floors or stacking boxes, and then gradually work their way up, position by position, rank by rank, to learn every aspect of the business from the shop floor to the boardroom. He tried to calm the indignant teen.
“What are you worried about: making money or learning about the company?” he asked his son.
“I was 17. That was an easy answer: ‘Making money!’ ” Frank recalls exclaiming to his father.
“I said, ‘You’re not getting a raise, and you’re going to work harder than anybody out there,’ ” recollects Tom, who retired as president and CEO in 2002. “Anybody who looked at a Sullivan working there, their immediate first thought was,They’re working here because of the old man.”
Frank Sullivan tolerated the low wages and lack of preferential treatment through college and even into his professional career, which didn’t begin at RPM, but in the commercial banking industry. He was lured to return to the company, but still had to work his way up to where he is now: president and CEO, a position he’s held for more than five years.
In that time, despite domestic and global challenges, Sullivan has grown RPM to a record $3.4 billion in revenue and $200 million in profits, both goals he set for the company when he became CEO in 2002. It hasn’t been easy. Faced with increased raw-materials costs, time-intensive and costly asbestos litigation and an unpredictable construction market, Sullivan has bolstered the company through global acquisitions, including the purchase last month of Paris-based Prosytec SAS, a maker of building sealants that reported sales of $39 million last year.
Sullivan has eliminated unprofitable brands, added services and innovative new products, and pushed RPM into the rapidly growing “green” market, offering more environmentally friendly building products such as its Dryvit exterior finish, which covers the Bellagio as well as other Las Vegas casinos thanks to its insulating qualities.
“He’s really strengthened the organization,” says Saul Ludwig, analyst for KeyBanc Capital Markets in Cleveland. “The most remarkable thing is he’s been able to show record earnings every year despite unbelievably high raw-material costs.”
Most RPM customers probably have no idea they are using one of its products. RPM’s brands, however, are well known. On the shelves of The Home Depot, Lowe’s and Wal-Mart, you’ll find RPM’s consumer brands such as Rust-Oleum, DAP, Nature Seal and Testors, the model glue. On the industrial side, construction and maintenance professionals know Carboline, Fibergrate, StonHard and Dryvit, one of the top exterior building materials.
Frank C. Sullivan, however, remembers when Republic Powered Metals, the company his grandfather launched in 1947, produced only one product out of the company’s far West Side Cleveland headquarters.
In 1969, the founding Sullivan moved the company out to Medina, which, prior to Interstate 71 opening the area to development, was a small, rural pit stop between Akron and Cleveland. The elder Frank Sullivan raised thoroughbred horses on a 120-acre farm and relocated his warehouse and a factory after National City Corp. had bought the land surrounding him in Cleveland for an operations center on West 150th Street. With no room to grow, Sullivan uprooted to the country.
“There were no highways, no hotels, no restaurants, no nothing,” says Frank the II. “So we built a lodge as a place to house visitors out here.” The lodge still exists, but in the 1990s it was converted into an office building to house meeting rooms and RPM’s boardroom.
Due to these rustic roots, RPM International’s world headquarters more closely resembles a country club or upscale, woodsy resort. Surrounded by forest and rolling, grassy hills, Sullivan’s office is about a half mile down a twisting, private drive off a bustling and overdeveloped stretch of Pearl Road, creating a parklike oasis for its workers and a reminder of days long gone.
The two-story colonial executive office building is stately and classic. Inside, dark varnished wood adorns the walls of the soft-lit narrow corridors and suites. Everyone in the building greets each other, including Sullivan, by first name. There aren’t many workers in the building, which is surprising considering the corporation has more than 9,400 employees worldwide. The lack of personnel is intentional. As Sullivan says, administrative offices don’t make anything and don’t sell anything.
“We’re an expense center,” Sullivan says. “Our goal is to be as lean as we can so that most of our resources can be devoted to the companies. We’d rather be hiring salespeople than corporate staff.”
A leaner operation has been one of the signatures of Sullivan’s tenure as CEO. His grandfather was a hands-on entrepreneur, his father was a corporate builder through acquisitions and Frank the II, while not afraid to invest the company’s money (he’s acquired 28 businesses and product lines in the last five years), has excelled in streamlining operations and cost cutting.
On the operations side, Sullivan assembled a management team of four executives (“People who can say ‘yes,’ ” to tough decisions, according to Sullivan), as well as five group presidents of the 40 businesses that RPM holds.
“I feel like I’m the most useless guy in the whole place,” Sullivan says. “I could disappear tomorrow and this place would keep on clicking. We have a corporate team of people who are doing terrific work and everybody knows what their role is.”
Shortly before he became CEO, financial belt tightening began with RPM selling noncore businesses — more than $100 million worth in the first two years alone. More recently, in 2006, the company sold wallpaper design company Thibaut Inc. to Cleveland private-equity firm Riverside Co., and last year it sold Bondo, an auto body filler that had been part of RPM since 1993.
“He’s brought a keen financial focus to the company,” says Elliot Schlang, analyst for research firm Great Lakes Review in Cleveland, a division of Soleil Securities, who’s covered RPM since 1982. “He pulled out those companies that were not carrying their own weight or didn’t have the growth potential that the others had.”
Beyond reorganizing the leadership and eliminating unproductive products and businesses, Sullivan’s largest struggle as CEO has been growing the company amid an avalanche of asbestos litigation.
In 1966, RPM acquired Reardon Co. of St. Louis, a manufacturer of several home-improvement products, including Bondex, a joint compound used on drywall. The compound contained a small amount of asbestos, which, at the time RPM acquired Bondex, was not known to cause cancer. Since then, there have been thousands of reported cases of mesothelioma, a cancer believed to be caused by the exposure to any of the former 3,000 asbestos-containing products.
More than 700,000 lawsuits have been filed against companies that produced asbestos-containing products, and RPM’s subsidiaries have been named as the defendant or co-defendant in more than 10,800 of those cases. When RPM discontinued the Bondex product in 1977 following a federal regulation, it made up approximately $10 million of its sales. Since 2003, defending against lawsuits and pursuing its own against its liability insurance companies has cost the company more than $598 million in various charges on its balance sheet.
“We didn’t anticipate that [five years ago],” says Sullivan, whose company didn’t face the onslaught of litigation until his tenure. “That issue isn’t over, but it’s on the wane.”
Sullivan and RPM’s top attorney, Kelly Tompkins, have been active nationwide in pushing tort reform to state and federal lawmakers to help stem the tide of lawsuits.
“He’s been proactive in getting RPM in the best position given the bad hand that they were dealt,” Ludwig says.
In the past six months, RPM’s New York Stock Exchange-traded stock peaked at $24.35 in early October after its StonCor subsidiary acquired a Scandinavian maker of sealants for the boating and marine industry, and it bottomed at $17.92 close to Thanksgiving, most likely due to more bad news about the housing market. As of press time, the stock closed at $20.37 a share.
Sullivan’s first job at RPM was in the orders department in 1974 when he was 13 years old. In those days, the orders would come in over the phone or by mail. Orders would arrive from throughout the country on not just the proper paperwork, but also on cocktail napkins or the backs of envelopes.
“A doctor couldn’t read some of these chicken scratches,” Sullivan laughs. “We’d have to decipher it, or call the salesman and ask, ‘How many barrels of this do you want?’ ”
After working inside the office for a couple summers, Sullivan moved to building maintenance, landscaping, loading trucks and the roof coatings factory, which inspired the wage dispute with his father.
After graduating from the University of North Carolina, Sullivan moved to Chicago with his wife, Barbara, where he worked in commercial finance at Harris Bank and then First Union. Splitting from the family business, if only for a few years, was important to Sullivan, even though he always knew he would return to the company.
“It was important for me to go out and create some of my own success where my last name didn’t mean a hoot to anybody,” he says.
Staying out of RPM was difficult. According to Frank, his father tried to lure him back for years, but it wasn’t until RPM launched a joint venture with a German company, AGR, in 1986 that sealed the deal for Sullivan to return. The German firm had a factory in Charlotte, N.C., the home state of Barbara, the second youngest of 10 brothers and sisters, all of whom still lived there.
During a dinner at a posh downtown Chicago restaurant, Tom casually mentioned to Frank he was looking for sales managers for the new North Carolina facility. Barbara’s eyes lit up, the men say. To this day, Frank believes the two conspired behind his back.
“Neither one of them will admit that they were in cahoots that night,” Frank says.
“No, I don’t remember any conversation with Barbara beforehand,” says Tom. “But I knew this would work, and it did very well.”
After two years in Charlotte, earning less than he did in the banking industry, Sullivan moved back up to join the rest of the Sullivan clan, most of whom live in Bay Village. Today, Sullivan has four sons, and his brother, Tom Jr., who is a vice president of corporate development, has three daughters and a son.
“One-third of our businesses are run by the original owner or founder or the second- or third-generation family member,” Sullivan says. “Our culture not only allows that, it promotes it.”
With so many RPM products derived from petroleum and petroleum-based ingredients, the escalating cost of oil is one of the company’s major challenges if it is to reach
$5 billion in sales as Sullivan wants in the next three years.
To reach that goal, Sullivan plans to tackle new global markets. Only 22 percent of RPM’s sales came from outside the United States and Canada last year, an improvement over five years ago, but with the amount of building occurring in China, India and South America, RPM’s businesses are aggressively pursuing those areas.
“Sullivan has accelerated the movement to building their business abroad to become less dependent on the North American market and pick up growth overseas that they may have left on the table,” says Great Lakes Review’s Schlang.
Acquisitions will play a larger role, too. Buying product lines and companies accounted for half of RPM’s growth in the last 30 years, but acquisitions over the last five years have only been about one-third of its growth.
Moreover, like most major corporations, Sullivan feels RPM must be a larger player in the market for environmentally friendly, or “green,” building products. He cites a study from the consulting firm McKinsey that names inefficient insulation of commercial and residential buildings as the No. 1 contributor to greenhouse gases worldwide. RPM’s Dryvit exterior finish, Permaquik roofing material and Horizon basement products are picking up momentum from the green trend.
“In three to five years, the energy savings more than pays for the higher costs of these building practices,” Sullivan says. “But it’s going to take regulatory changes to do that, because builders aren’t going to spend 5 to 10 percent more just because it’s energy efficient.”
At only 47 years old, Sullivan is expected to hold the chief executive’s seat at RPM for many years to come (Tom retired after 31 years in the top position). That’s fine with him because his sons are not yet old enough to work for the company. If they do, they can expect to work harder for less pay than anyone and climb the ladder one rung at a time. That’s the Sullivan way.
“We’re not really a family business anymore — we’re a major public company,” says Sullivan, whose family collectively owns about 10 percent of the RPM stock. “But we still have a strong presence, and it sort of permeates our culture.”
THE SULLIVAN FILE
Name: Frank C. Sullivan
Title: President and CEO, RPM International Inc.
Age: 47
Born: Fairview Park
Lives: Bay Village
First job: Office assistant, RPM International Inc.
Education: Bachelor’s degree from the University of North Carolina, Morehead Scholar
Career highlights:Commercial lending and corporate finance associate at Harris Bank and First Union National Bank, Chicago, 1983 to 1987; regional sales manager at RPM joint venture AGR Co., 1987 to 1991; vice president, corporate development, 1991 to 1993; chief financial officer, 1993 to 1995; executive vice president, 1995 to 1999; president, 1999 to 2001; president and chief operating officer, 2001 to 2002; president and chief executive officer, 2002 to present
Boards: The Timken Co., the Cleveland Foundation, the Greater Cleveland Chapter of the American Red Cross, the Ohio Business Roundtable, the Rock and Roll Hall of Fame and Museum and the Greater Cleveland Partnership
Family: Wife, Barbara, and four sons