M10: How Valuable Is Your Word?
Things have changed since the 1980s when many business deals were done on a handshake and a promise. Jon Huntsman Sr. was a man who was comfortable with deals on a handshake. Big deals. This is a story about a deal, one that was worth millions, that was made without lawyers, only his word…but when the circumstances changed before the deal was put in writing, Jon Huntsman Sr’s word, and the handshake he made, was put to the test. What will shock you is how he handled this situation, and what it did to his future.
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M10: HOW VALUABLE IS YOUR WORD?
OK… …HAPPY MONDAY…. THINGS HAVE CHANGED A LOT IN OUR SOCIETY SINCE THE 1980S. BACK THEN, THERE WAS NO INTERNET. PEOPLE WERE JUST STARTING TO HAVE COMPUTERS AND VIDEO CONSOLES IN THEIR HOMES. MOVIES WERE RENTED AT VIDEO STORES, PLAYED ON VCRS AND WATCHED ON LIVING ROOM TVS THAT WERE LARGE WOODEN BOXES, THE SIZE OF RIDING LAWN MOWERS. FAX MACHINES WERE A CRUCIAL DEVICE FOR GETTING BUSINESS DONE, AND THE CLAPPER HAD EVERYONE HIGH-FIVING TO TURN EACH OF THESE DEVICES ON AND OFF.
ANOTHER THING THAT WAS COMMON IN BUSINESS BACK THEN WAS DEALS BEING DONE WITH A HANDSHAKE. IN THOSE DAYS A HANDSHAKE AND YOUR WORD MEANT A LOT.
THIS IS A STORY ABOUT A LARGE BUSINESS TRANSACTION THAT WAS DONE A LONG TIME AGO WITH A HANDSHAKE, AND WHAT HAPPENED WHEN THE CONDITIONS OF THE DEAL CHANGED BEFORE THE DOCUMENTS WERE SIGNED. IT’S A STORY THAT BEGS THE QUESTION: HOW VALUABLE IS YOUR WORD?
EPISODE
JON HUNTSMAN WAS BORN INTO A POOR FAMILY IN BLACKFOOT, IDAHO IN 1937. AFTER THE FAMILY MOVED TO CALIFORNIA, HE ATTENDED PALO ALTO HIGH SCHOOL, AND THEN WENT TO STANFORD UNIVERSITY WHERE HE EARNED A GRADUATE DEGREE IN EDUCATION. AFTER SERVING A FEW YEARS AS AN OFFICER IN THE UNITED STATES NAVY, HE EARNED HIS MBA FROM THE UNIVERSITY OF SOUTHERN CALIFORNIA AND BEGAN HIS CAREER IN BUSINESS.
THE YOUNG HUNTSMAN WAS BRIGHT AND AMBITIOUS SO HE ROSE THROUGH THE RANKS QUICKLY AT HIS FIRST JOB AT A CALIFORNIA PACKAGING COMPANY. IT WASN’T LONG BEFORE HE SAW AN OPPORTUNITY. FAST-FOOD RESTAURANTS WERE STARTING UP AROUND THE COUNTRY….SO HE LEFT HIS JOB AND STARTED HIS OWN COMPANY THAT FOCUSED ON SERVING THE NEEDS OF THE FAST-FOOD MARKET. HE BORROWED HEAVILY FROM BANKS TO KEEP THE NEW COMPANY AFLOAT, AND THEN LANDED A CLIENT THAT WOULD CHANGE HIS FORTUNE. THE COMPANY WENT INTO BUSINESS WITH A NEW RESTAURANT CALLED MCDONALDS, AND THEY DESIGNED THE FIRST EVER CLAMSHELL CONTAINER FOR A NEW SANDWICH CALLED THE BIG MAC.
THEY ALSO INVESTED SIGNIFICANTLY IN DESIGNING OTHER FAST-FOOD CONTAINERS AT A TIME WHEN LARGER COMPANIES IN THE SECTOR WEREN’T NIMBLE ENOUGH TO CATER TO AN UP-AND-COMING INDUSTRY.
NEEDLESS TO SAY, HIS COMPANY WAS A MASSIVE SUCCESS, AND HE EVENTUALLY SOLD THE COMPANY AND WALKED AWAY WITH A SMALL FORTUNE.
BEFORE LONG HE HAD STARTED ANOTHER COMPANY, THIS TIME IN THE CHEMICALS INDUSTRY. AFTER SEVERAL YEARS IN BUSINESS, IT BECAME CLEAR THAT IT NEEDED SIGNIFICANTLY MORE FUNDS IN ORDER TO GROW. SO, HUNTSMAN PUT 40% OF THE COMPANY UP FOR SALE. HE EVENTUALLY FOUND THE RIGHT PARTNER IN THE GREAT LAKES CHEMICAL COMPANY, AND HE WORKED OUT A DEAL WITH EMERSON KAMPEN, THE COMPANY’S CEO TO BUY THE 40% STAKE.
WHEN THE TWO MEN REACHED THE AGREEMENT, THEY DIDN’T HAVE LAWYERS WITH THEM - THE PAPERWORK WOULD NEED TO BE DRAWN UP LATER, SO HUNTSMAN AND KAMPEN SHOOK HANDS ON A SALE PRICE OF $54 MILLION DOLLARS, AND AGREED TO SIGN THE PAPERWORK AT A LATER DATE.
HOWEVER, THERE WAS A BIT OF A DELAY IN GETTING TO SIGN THE FINAL DOCUMENTS, AND BETWEEN THE TIME WHEN THEY FIRST SHOOK HANDS TO WHEN IT CAME TIME TO SIGN THE DEAL, SEVEN MONTHS HAD GONE BY, AND…AT LOT HAD CHANGED. THERE WAS A MAJOR DECREASE IN THE PRICE OF RAW MATERIALS, AND HUNTSMAN’S COMPANY PROFITS HAD SOARED. 40% OF THE COMPANY WAS NOW WORTH $250 MILLION, FIVE TIMES WHAT IT WAS WORTH WHEN THEY FIRST SHOOK ON THE DEAL.
EMERSON KAMPEN CALLED HUNTSMAN AND INFORMED HIM THAT HE COULDN’T AFFORD TO PURCHASE THE COMPANY FOR $250 MILLION. HE ASKED IF HUNTSMAN WOULD BE WILLING TO MEET IN THE MIDDLE AND SELL THE 40% STAKE IN THE COMPANY FOR $150 MILLION. HUNTSMAN THOUGHT ABOUT IT AND THEN SAID “WE SHOOK HANDS. I GAVE YOU MY WORD. WE AGREED TO A PRICE OF $54 MILLION AND THAT’S THE PRICE I EXPECT YOU TO PAY.”
SO THE DEAL WAS DONE.
HUNTSMAN DIDN’T DO THIS BECAUSE HE WAS A FOOL. QUITE THE OPPOSITE. IN THE END, HUNTSMAN RELIED ON THE PRINCIPLE THAT HIS WORD, AND A HANDSHAKE, WERE HIS BOND, AND HE WASN’T GOING TO ASK TO RENEGOTIATE, NOT EVEN FOR $100 MILLION DOLLARS. MAINTAINING HIS INTEGRITY WAS MORE IMPORTANT.
DESPITE RECEIVING LESS THAN THE COMPANY WAS WORTH, HUNTSMAN DIDN’T LOOK BACK. HE PUT HIS HEAD DOWN AND GOT TO WORK - AND NOW WITH THE RESPECT OF A NEW STRATEGIC PARTNER, HE GREW THE COMPANY INTO A $10 BILLION DOLLAR A YEAR PETROCHEMICAL LEADER AND BECAME SO WEALTHY THAT IT MADE $100 MILLION DOLLARS SEEM COMPLETELY INCONSEQUENTIAL.
WHEN HE EVENTUALLY LEFT THE CHEMICAL COMPANY, HE WENT ON TO BECOME ONE OF THE LARGEST PHILANTROPISTS IN AMERICAN HISTORY, ACHIEVING HIS GOAL OF GIVING AWAY NEARLY ALL OF HIS NET WORTH BEFORE HE DIED IN 2018. THE HUMANITARIAN CONTRIBUTIONS BY HE AND HIS WIFE, KAREN, HAD MAJOR IMPACTS IN THE AREAS OF POVERTY, CANCER RESEARCH, AND EDUCATION.
I JUST CAN’T GET OVER THE DECISION HUNTSMAN MADE TO HONOR HIS ORIGINAL HANDSHAKE AGREEMENT. IT MUST HAVE BEEN INCREDIBLY DIFFICULT TO TURN DOWN THAT SUM OF MONEY AT A TIME WHEN HIS COMPANY NEEDED IT – AND ALL BECAUSE HE SHOOK SOMEONE’S HAND AND GAVE HIS WORD.
FEW DEALS ARE DONE ON A HANDSHAKE ANYMORE, BUT IT’S SOMETHING TO THINK ABOUT….THE POWER OF A HANDSHAKE….AND THE IMPORTANCE OF YOUR WORD. WHEN YOU HOLD YOUR WORD UP HIGHER THAN OTHER THINGS LIKE SHORT TERM GAINS, TO SOME, YOU MAY LOOK LIKE A FOOL…BUT IN THE END….IT’S YOUR FACE YOU SEE IN THE MIRROR, IT’S YOUR NAME. IT’S YOUR REPUTATION. AND WHEN YOU TAKE CARE OF THOSE THINGS, AS THE LATE JON HUNTSMAN KNEW….ALMOST ALWAYS….GOOD THINGS FOLLOW.
https://en.wikipedia.org/wiki/Jon_Huntsman_Sr.