AFTER LAND Rover and Jaguar, ICI looks likely to be the next British manufacturing icon to fall under foreign control (see page 4). Even more than the carmakers, ICI’s history is full of painful ironies, the most poignant of which is that its eclipse is entirely home-made. The brutal truth is that ICI has imperilled its independence by dutifully complying with the approved nostrums of financial management over the last two decades.
It’s worth emphasizing that the old ICI wasn’t just the UK’s largest and most successful manufacturing firm for much of the 20th century. As economist John Kay has pointed out, it was also one of the main progenitors of the country’s most celebrated (in fact, its only) hi-tech industry.
After the war, ICI’s board decided that the future of chemicals lay in pharmaceuticals. Among the clever young scientists it hired was James Black, whose discovery of beta-blockers laid the foundations for ICI’s pharmaceuticals division, later Zeneca. Black took similar concepts to SmithKline, where he won a Nobel prize for his work on a stomach-ulcer treatment that became Tagamet, the blockbuster that indirectly begat Zantac – for many years the best-selling drug in the world and the one on which Glaxo’s fortunes were based.
It took no less than 20 years for ICI’s pharma operations to break even – but patiently growing its stock of resources was what ICI was for , as its mission statement of the time made clear. As late as the 1980s, its stated aim was to be ‘the world’s leading chemical company, serving companies internationally through the innovative and responsible application of chemistry and related science. Through achievement of this aim, we will enhance the wealth and wellbeing of our shareholders, our employees, our customers and the communities which we serve and in which we operate.’
It is possible to identify the exact moment when all that changed. In 1991, Hanson, a company which in many of its methods anticipated today’s private equity houses, bought a small stake in ICI which was widely thought to be the precursor of a full bid. It wasn’t, but – rather like the Cadbury Schweppes demerger today – the threat, sensational at the time, was enough to spur the company to do exactly what the raiders wanted: break itself up, float off pharma and arm itself with a new, managerially correct mission statement that was more in tune with the age of shareholder value: ‘Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world-competitive cost base.’
Instead of growing through its own R&D (‘the innovative and responsible application of chemistry’), ICI now saw its strategy as dealmaking – dumping commodity chemicals and buying its way up the value chain in the shape of fragrances and a sheaf of speciality chemicals acquired from Unilever. So far, so fashionable. But ICI went one better. Again anticipating what is approved practice today, it burdened itself with pounds 4bn of debt to do the Unilever deal. Unfortunately, it failed to sell off the old assets as quickly as it hoped, turning the debt into a millstone that prevented it from doing anything else. Earnings and share price declined. The chief executive left.
Under the latest regime, ICI is thought to have done quite well, paying down the debt and beginning to grow again. But it has paid dearly for the five-year period when it was paralysed by debt and you might say that, in the longer term, the Dutch bid is its reward for having faithfully reflected in its strategy the financial orthodoxy of the time, an orthodoxy that it helped create.
It is important to stress that ICI wasn’t just any old company, but a genuine world leader. It was managed by the great and the good, individuals who headed commissions and bequeathed us today’s governance rules, among other things. As such, the reason it finds itself in the position it does today is not dishonesty, roguery, or irresponsibility. It is not even bad management – or, rather, it is, but it’s institutionalised bad management of the kind that ticks all the boxes of the narrow playmakers by whose rules the UK’s corporate economy now runs.
You won’t be surprised to know that ICI has crafted itself yet another vision. This one is ‘to become the leader in formulation science, creating complex mixtures that deliver the effects valued by consumers and customers’. It continues: ‘To achieve this leadership goal, and through this create superior returns for shareholders, the group is building a portfolio of businesses that are leaders in their respective industries, bringing together consumer understanding, outstanding knowledge of customer needs and processes, and leading edge technology platforms to provide a distinctive, competitive advantage’.
I’ll leave you to decide which of the three mission statements provides the most appropriate guidance for a developing, world-leading company, and which reads most like an epitaph.
The Observer, 24 June 2007