Abstract

"Hercules, 1912-2007: The Growth of an Innovative Enterprise and Its Financialized Demise"

Matt Hopkins, Academic-Industry Research Network (matt.hopkins101@yahoo.com)

rom DuPont Nemours and Co. in 1912. It went on to operate successfully as an independent firm for almost a century. Hercules is unique in that it was the subject of a Newcomen prize-winning case study that Edith Penrose published as a Business History Review article in 1960, one year after the appearance of her Theory of the Growth of the Firm. For Penrose, Hercules exemplified organizational learning in a multidivisional corporation. Hercules was also included in Alfred Chandler Jr.’s major works, starting with Strategy and Structure in 1962, as a constituent of the chemicals industry, and as case study in Chandler’s 2004 book Shaping the Industrial Century. Hercules success was a result of what Chandler called in his 2004 book the “virtuous cycle”, Hercules’ success in innovation providing a foundation for its continued growth. Hercules run as an independent firm was ended when it was acquired by Ashland Chemical in 2008. In this essay I argue that the root of Hercules’ “death” can be found in its transition from innovation to financialization in the 1990s. Hercules’ financialization was heralded by the conduct of its first large-scale buybacks, a radical shift to stock-based pay for employees empowered to exercise strategic control, and the embrace of “maximizing shareholder value” as a prime corporate governance objective of its top management. While Hercules’ financialization succeeded in boosting its stock price, the gains were temporary, and, funded by downsizing, eventually destroyed both shareholder and real economic value.