The long road from leather

Freudenberg has always been good at transformation. Again and again, the company has analyzed market opportunities successfully and departed from cherished and familiar paths. But there is one major exception: its emotional attachment to its original business, leather.

In the beginning, it was a tannery in Weinheim. Today it is a global technology company with a wide-ranging portfolio of products. Freudenberg has often remade itself. This has meant making repeated adjustments, repositioning its business and seeing changes as opportunities. So it sounds as though rationality has largely prevailed at Freudenberg. Always? No, not always. After all, human beings are at the helm of any company. And their behavior can vary at times – it can be less rational and more emotional. That’s one reason there was a struggle over the company’s original leather business from the late 1960s until it came to an end in 2002.

Let’s start with a few facts: Between 1969 and 1986, Freudenberg’s leather division lost a total of 131 million Deutschmarks. The losses were the most serious in 1973 when the division’s losses reached about 33 million Deutschmarks. The company’s profits that year were about 51 million Deutschmarks. Over time, the leather’s total share of Freudenberg’s revenue fell precipitously.

So from a purely economic standpoint, it was clear that an earlier exit from the leather business would have made sense. That was also the finding of an in-house study of the leather division’s profitability in 1986. It stated that, “in economic terms,” it had become impossible to continue the business. Nonetheless, Freudenberg’s 153-year-old commitment to leather would not come to an end until 2002. It is clear that no other product would have been given such a long reprieve. But in the end, this was not just any product – it was leather, the wellspring from which everything else emerged.

But in another way, the response was not at all typical of a skilled corporate quick-change artist. In its simplest form, the  decades-long strategy for its money-losing natural leather division could be described as “shrink it, don’t close it.” The unit’s capacity and costs were reduced, which naturally led to the division’s downsizing. The Board of Management was opened up to non-family members in 1970. Still, for a long time, it could not bring itself to fully shut down its venerable leather business. 

The Board began discussing the topic in earnest in 1986, if not earlier. In that year, a letter was drafted to notify the Partners of the closing. But the measure was not carried out, and the letter was never sent to shareholders.  

Rudolf Scharpff, member of the Board of Management from 1979 to 1993, was in charge of the leather business at this time. His account of the board’s inner conflict on the matter is even more impressive. “I was […] already on the way to liquidate it, but Hermann [Freudenberg] called and said, ‘we are not going to do it’ […]. Then it was delayed.”

Hans Erich Freudenberg saw the reasons for the long attachment to leather as “a sense of responsibility for the jobs and ties to a tradition.” The response from Reinhart Freudenberg, member of the Board of Management from 1972 to 1997, was similar. As one of the defining personalities in Freudenberg history, he will have the last word on the matter: “In retrospect, we would have saved an incredible amount of money if we had closed it much more quickly. But that was impossible from an emotional standpoint.”