How UTC board decided to break up conglomerate
The board of directors of United Technologies Corp. needed some convincing before it agreed to break up the 45-year-old conglomerate and jettison stalwart subsidiaries Otis Elevator and Carrier.
The one-time Farmington-based conglomerate spun off its iconic elevator brand and heating and cooling manufacturer last year, completing the work begun years earlier as it focused on aerospace and defense in a merger with Massachusetts-based Raytheon Technologies Co.
“How do you convince everybody that a conglomerate is a thing of the past?” Chief Executive Officer Gregory Hayes said in a video produced by Ernst & Young and posted on the Wall Street Journal’s website. “It was a long road I would tell you with our board because as you can imagine on the board many of them had been here 15, 20 years.
“All they knew was UTC at the time,” which included Otis, Carrier, jet engine manufacturer Pratt & Whitney, aerospace parts maker Hamilton Sundstrand and Goodrich, a 2012 aerospace acquisition, Hayes said.
“But to go and say, ‘Look I know that’s what the past was, but let me tell you what the future needs to be,’ ” he said.
The nearly 20-minue video, “Leadership in Action,” presents the point of view of the chief executive who steered the Connecticut conglomerate, formed in 1975 under the leadership of CEO Harry Gray, into an aerospace and defense giant based in Waltham, Mass.
Raytheon’s commercial aviation business has been hit hard by the coronavirus as airline customers keep planes grounded, waiting for passengers to return. But its military business is strong as Congress and the Pentagon boost spending.
Hayes said he enlisted Vikram Mansharamani, a Harvard University lecturer and commentator on business disruption, to present a different viewpoint.
“And by letting him go through that exercise, giving him access to our board, having him present his own findings to the board gave us credibility with the board that I think we might not otherwise have had if it had just been management saying we need to go do this,” Hayes said.
Mansharamani said Hayes wanted a “devil’s advocate” to present an objective view of splitting up UTC.
“I enjoyed being the naysayer,” he said in an interview Thursday. “I was specifically tasked to tell him why he shouldn’t do it.”
After listening to arguments against dropping Otis and Carrier, Hayes and the board took the opposite tack and spun off the two companies “with greater conviction,” Mansharamani said.
The $30 billion purchase in 2018 of Rockwell Collins Inc., an Iowa company that makes aircraft cabin interiors, cockpit equipment and other components, “was the signal that we were really going to focus this company on aerospace and defense,” Hayes said.
“Because as soon as we got that done, we made a decision within 30 days to disassemble the rest of UTC, to spin off Otis, to spin off Carrier and really become just a focused (aerospace and defense) company,” he said.
Years before Otis and Carrier were cut loose to become stand-alone companies, UTC sold Sikorsky Aircraft to Lockheed Martin for $9 billion in 2015. It announced in March 2015 it was reviewing a sale, but Hayes said he told the board that month — just four months after he became CEO — the helicopter maker would be dropped from the conglomerate’s portfolio.
“It was a difficult decision and difficult discussion to tell the folks at Sikorsky, ‘You know what? We love you, but you’re going to be better off with someone else,’ ” he said.