Good-Bye, Uncle Kodie

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The recent bankruptcy filing by the Eastman Kodak Company was a shock to me, but not exactly a surprise. It was certainly another sad reminder that the world I once knew was gone forever. I worked for the company at its Kodak Park Works in Rochester, New York in the 1960s, leaving of my own accord in 1970. A detailed autopsy of its decline and fall must await a soul with perceptions keener than mine. But I suspect its decline was a result of its very domination of the imaging market. With little competition, the company’s leaders had simply forgotten how to compete — which involves adjusting to changing market conditions, which involves making sound and timely decisions.

I hired on as a research chemist in the Organic and Polymer Chemistry Department, part of the Chemistry Division, which was part of the famous Research Laboratories established in 1912 by noted photographic theorist C.E.K. Mees. I had done poorly in graduate school — quantum mechanics and its chemical and philosophical extensions struck me as moonshine. Still, I revealed some small gift for research in organic chemistry. Of course, there were many fine organic chemists at Kodak’s laboratories, some famous, and they sent a steady stream of publications to scientific journals.

In the 1960s, Kodak was riding high. Its most profitable market was the amateur photography market. Its Instamatic camera appeared in the early part of the decade. It was a huge success, and Kodak’s amateur film business was booming. And of course, the company sold film to professional photographers, motion picture film to Hollywood, and X-ray film to the medical profession. Needing chemicals free from impurities that could harm silver halide emulsions, Kodak had long ago begun making its own. And this led it into the successful marketing of research chemicals and polymers through its Distillation Products Industries and their Tennessee Eastman and Texas Eastman Divisions.

The annual wage dividend was a result of a profit-sharing plan begun by George Eastman to discourage socialist tendencies.

I worked in Building 129, and then in Building 82, the latter a brand new research building with the best interior design for the working chemist I’ve ever seen. There were other chemistry laboratories in Building 59, which also housed the Applied Photography and Emulsion Research divisions. These two divisions were considered chimneys to the top administrative positions in the Research Laboratories and to those in the company hierarchy. In those days, the company promoted entirely from within — was this the fatal flaw?

In any event, for the plain old-fashioned organic chemist, the opportunities to learn and grow within the science were enormous. In research at a fundamental level, no one is really certain of what will yield useful results. Some with imposing credentials may think they have an accurate crystal ball, and some may even prove correct in their educated guesses. But in the long run, innovation is best served by research leaders who know when to stand aside — and how to choose people who don’t require nagging supervision. The chemists at Kodak, free to roam, were devoted experimentalists and produced a huge amount of new work, including new synthetic techniques, new reactions, and new organic compounds.

Of course, every chemist took the company course in photography, one that covered both theory and practice. It gave everyone an intellectual nudge toward the practical problems of image-making with silver-halide emulsions. And there was a photography-related testing program. Each new compound was sent to the Emulsion Research Division for testing — was it an antifoggant? A diffusion transfer agent? Did it promote undercut? And from time to time, a request would come back for more of a particular compound that had proved interesting. But I was quite free to explore my favorite field — heterocyclic chemistry. I might have done it all for room and board, but I was paid a decent salary and, in addition, got that famous annual wage dividend. The dividend was a result of a profit-sharing plan begun by George Eastman — to discourage socialist tendencies. Such rewards helped me endure the long snowy winters of Rochester.

Curiously, at each implosion, the mood was festive, and the onlookers cheered. I don’t think the cancelled-stock holders cheered.

The company had accumulated an enormous expertise in the manufacture of photographic film. It had developed the precise system of emulsion coatings, the proper mixes of silver halides, the sensitizing dyes, and the dye couplers for the amazing color processes. And with all this knowledge, and the success of the Instamatic line, came the idea that nothing would ever change. Oh, there was some distant thunder — I recall the suggestion from Varian Associates’ Edward Ginzton that his company was looking for an electric camera. This was back in the sixties, after I had bought some Varian stock. Yet within Eastman Kodak, I heard it said that, like the internal combustion engine (so help me), silver photography was such a perfect invention that it could never be replaced. Perhaps voicing this assumption was a gesture of loyalty to the company. Widely held, it lightened the burden of its top executives. Any far-reaching decisions, however imperative in the light of reality, could be postponed, if not altogether avoided. Still, as early as 1975, the executives had good reason to believe that digital imaging would, sooner or later, replace silver photography as a means of taking pictures. In that year, Steve Sasson, an electrical engineer working in a Kodak laboratory, constructed the first crude digital camera.

Looking back, I can recall seeing signs of fatty degeneration within the company. There were organizational slots being filled, but little work to occupy those who filled them. Some employees seemed to be struggling to find things to do. And I myself wondered, from time to time, why I was there. Perhaps I should have been replaced by an electrical engineer, though I couldn’t have guessed that at the time. I did leave my name on nine published papers and a number of company reports and memoranda, along with some novel unpublished work and two patents — neither patent of any real importance. My papers were sniffed at by certain academics, but I still have a collection of requests for reprints, and the papers are still referenced here and there. Certain compounds I made were superior antifoggants — but fogging isn’t a problem in digital imaging, at least not fogging by allylthiourea.

During my stay at Kodak, one new road to possible profit was almost, but not quite taken. The company hired a professor away from academe to establish a testing program, meant to identify potential drugs among the huge number of new compounds prepared by the organic chemists. But Kodak fired the man not long after it hired him. The “powers that be” decided they didn’t want to get involved in the making and marketing of drugs. I remember being surprised by the firing — having already made organic compounds by the boxful and sent them off to some storage area. I’ve always wondered what happened to those compounds and whether some wonder drug existed among them. Much later, of course, Kodak bought Sterling Drugs, to give it “worldwide infrastructure” — for what exactly? If it had tested its own compounds as potential drugs, it might have made plenty through licensing, without acquiring an enormous debt.

Within Eastman Kodak, I heard it said that, like the internal combustion engine, silver photography was such a perfect invention that it could never be replaced.

As I indicated earlier, the Eastman Kodak Company had for years been more than just a camera-and-film company. Eastman organic chemicals were common in research laboratories everywhere, and the company marketed its manufactured polymers through Tennessee Eastman and Texas Eastman. Yet none of these functions now belong to the parent company — all were “spun off” as the Eastman Chemical Company in 1993. The following year, Kodak sold its remaining interests in Sterling, the drug company it had bought just five years earlier. Its management team had apparently given up on its idea of diversification. It had decided instead to concentrate on its core business — and cast away those profitable but distracting assets. From diversification to downsizing in five years? This is the picture of a floundering management team.

Kodak’s decline had, I’m sure, a terrifying effect on Rochester. The misfortunes of the company nearly erased the value of Kodak stock — and in reorganizing under bankruptcy, the company cancelled the stock. It created new stock shares, but the former stockholders were left with nothing. In the 1960s, the earlier issue had risen above $140 a share, then split and headed upward toward its previous high. The annual wage dividend was calculated, in part, on the value of the common stock, and the company’s stock acquisition plan provided many employees with what they regarded as a nest egg. Local businesses prospered from Kodak’s payroll. I can recall Christmas shopping at the B. Forman Department Store. Mr. Forman would walk the floor, and once, when I told him I worked at Kodak, he said, “Good, you can have the whole store.”

Life was good in those days. Eastman Kodak was not just a company, but a city within a city, a kind of mini-civilization. There was a Kodak Park Athletic Association, whose softball team once had a pitcher named “Shifty” Gears — his feats are now recorded in the National Softball Hall of Fame. And there were the Kodactors, the employees’ prize-winning theatrical group. Many of Kodak’s professional people lived on the same street and attended the same social gatherings. For perhaps too many employees, the company was their world, encouraging the sense of a carefree existence. And it all proved to be a summer before the storm.

From diversification to downsizing in five years? This is the picture of a floundering management team.

Ah, but I recall my years at Kodak as a time of youth and affluence. I took dates to Eddie’s Chop House, heard my favorite piano player, Erroll Garner, at the Eastman Theater, and swam and sun-bathed at Ontario Beach. I recall talking to a Ph.D. candidate who had worked at Kodak and, when he got his degree, planned on returning to “Uncle Kodie.” Alas — Kodak is no longer Rochester’s rich uncle. And the world it created is now, if not gone, then greatly contracted.

Small businesses along State Street have disappeared — their clientele was mostly Kodak employees. From what I’ve read and seen online, Kodak Park, once an enormous manufacturing and research complex on Lake Avenue, is now much reduced. A number of its once-important buildings have been imploded. And curiously, at each implosion, the mood was festive, and the onlookers cheered. I don’t think the cancelled-stock holders cheered.

Markets change — and when markets change, management must respond. As Ludwig von Mises told us long ago, a business makes its profits by adjusting its total business practice to market conditions. Fujifilm, the Japanese photographic company, adjusted competently; Kodak simply failed to adjust with comparable skill. The capacity for sound decisions simply wasn’t there. Kodak’s leaders had the future in their hands, but didn’t recognize it — or found some excuse for evading the necessary decisions. In recent decades, the company had anointed a procession of George McClellans, when what they needed was a Robert E. Lee, or even a Nathan Bedford Forrest. Before stepping aside in March 2014, CEO Antonio Perez was himself a significant drain on the company’s assets. But he did smash and bash the company into some new things, leading it into and out of bankruptcy, drumming up trade in business markets. In the process, silver-emulsion coating became touch-screen technology and color photography became ink-jet printing. And now, the company’s stock is back on the Big Board. There may yet be a life for Eastman Kodak — though I suspect it will be as a mere pebble in a huge cultural and economic crater.

SOURCES
“Antonio Perez.” Forbes. www.Forbes.com/profile/antonio-perez/
“Antonio Perez Won’t Have Many More Kodak Moments.” New York Business Journal, 1 Aug. 2013. www.bizjournals.com/newyork/news/2013/07/31/kodak-ceo-to-resign-after-bankruptcy.html?page=all
Appelbome, Peter. “Despite Long Slide by Kodak, Company Town Avoids Decay.” The New York Times, 16 Jan. 2012. www.nytimes.com/2012/01/17/nyregion/despite-long-slide-by-kodak-rochester-avoids-decay.html?pagewanted=all&_r=0
Brancaccio, David. “Decline of Kodak Offers Lessons for U.S. Business.” Marketplace, 20 Dec. 2011. www.marketplace.org/topics/business/economy-40/decline-kodak-offers-lessons-us-business
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Dobbin, Ben. “Digital Camera Turns 30 — Sort Of.” NBC News.com, 9 Sept. 2005. www.msnbc.msn.com/id/9261340/ns/technology_and_science-tech_and_gadgets/t/digital-camera-turns-sort/
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Fruedenheim, Milt. “Business People: Senior Kodak Officer to Head Sterling Drug.” The New York Times, 21 Aug. 1988. www.nytimes.com/1988/08/12/business/business-people-senior-kodak-officer-to-head-sterling-drug.html
“Harold (Shifty) Gears. The National Softball Hall of Fame. www.asasoftball.com/hall_of_fame/memberDetail.asp?mbrid=177
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“Kodak to Sell Remaining Sterling Winthrop Unit: Drug: Smith Kline Will Buy the Consumer Health Products Business for $2.925 Billion.” Ibid, 30 Aug. 1994. http://articles.latimes.com/1994-08-30/business/fi-32940_1_health-products-business
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Mises, Ludwig von. Human Action: A Treatise on Economics. Third Revised Ed. Chicago: Contemporary Books, 1966.
Munir, Kamal “The Demise of Kodak: Five Reasons.” The Wall Street Journal, 26 Feb. 2012. http://blogs.wsj.com/source/2012/02/26/the-demise-of-kodak-five-reasons/
“The Rise and Fall of Eastman Kodak.” The Night Owl Trader, 25 Sept. 2011 and added posts. http://nightowltrader.blogspot.com/2011/09/rise-and-fall-of-eastman-kodak.html
Pfanner, Eric. “Fujifilm Finds Niche With Niche With Old-Style Cameras That Mask a High-Tech Core.” The New York Times, 19 Nov. 2013. www.nytimes.com/2013/11/20/business/international/as-digital-camera-sales-sputter-fujifilm-finds-its-niche.html
Scheyder, Ernest. “Focus on Past Glory Kept Kodak from Digital Win.” Reuters, 19 Jan. 2012. www.reuters.com/article/2012/01/19/us-kodak-bankruptcy-idUSTRE80I1N020120119
“Summer Arts Theater Presents Two Plays.” Spencerport NY Suburban News, 23 July 1964. inter alia. (The Kodactors). http://fultonhistory.com/

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Comments

Johnimo

Thank you for an insiders look at a great American Company that simply failed to change with changing markets. We must all look at Kodak, and then go look in the mirror and face up to the changes we need to make in our personal lives. It's far too easy to fall in love with that person looking back, overlooking the faults and weaknesses in need of remedy.

On a national level we see a similar fate that awaits an economy and a national character in love with the status quo in which too many take for granted (or just take) that which is unsustainable. Those little yellow boxes on the photo store shelves are all out of date.

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