Registered in US.Patent and Trademark Office;Copyright 1984 by the American Chemical Society
VOLUME 17
NUMBER 5
MAY, 1984
EDITOR JOSEPH F. BUNNETT ASSOCIATE EDITORS Joel E. Keizer John E. McMurry EDITORIAL ADVISORY BOARD Robert Abeles Richard Bernstein R. Stephen Berry Michel Boudart Maurice M. Bursey Marshall Fixman Jenny P. Glusker Kendall N. Houk Keith U. Ingold Jay K. Kochi Maurice M. Kreevoy Theodore Kuwana Ronald N. McElhaney George W. Parshall Kenneth N. Raymond Jacob F. Schaefer Richard C. Schoonmaker Anthony M. Trozzolo
BOOKS AND JOURNALS DIVISION D. H. Michael Bowen, Director Journals Department: Charles R. Bertsch, Head; Marianne C. Brogan, Associate Head; Mary E. Scanlan, Assistant Manager; Anne C. O’Melia, Assistant Editor Marketing and Sales Department: Claud K. Robinson, Head Production Department: Elmer M. Pusey, Jr., Head Research and Development Department: Seldon W. Terrant, Head The American Chemical Society and its editors assume no responsibility for
the statements and opinions advanced by contributors. Views expressed in the editorials are those of the writers and do not necessarily represent the official position of the American Chemical Society. Registered names and trademarks, etc., used in this publication, even without specific indication thereof, are not to be considered unprotected by law.
Tight Management We happen to own a few shares of stock in a chemical company that makes and markets specialty chemicals. A recent quarterly report proudly proclaims that net earnings were 72% higher than in the year-ago quarter. The improvement was attributed principally to strong sales in the US., higher gross margin, and “continued tight control of operating expenses.” Equivalent statements appear in reports from other companies. We are intrigued by the claimed “tight control”. For guidance, we consulted Webster’s Dictionary (second edition, unabridged, in which we conservatively place our faith). Among 17 definitions of “tight”, a few seemed possibly applicable to the statement of interest. “Intoxicated; tipsy”, while conceivable, we reject. “Close-fitting; usually, too close or small for comfort” seemed possible, especially from an insider’s perception. But “closefisted; stingy” seemed to us closest to the probable intent of the executive who wrote the report. The company’s annual report of a few months ago tells us that increased attention was given to expense control, which now appears to have become tight. If we accept closefisted or stingy management as a virtue, which seems to be the executive’s view, we are interested in the implication that the management a year or two ago was lacking in that virtue. Earlier reports from the company don’t tell us much about that. Why is the financial community seemingly so unconcerned about that implication? Are financial analysts too thick-skulled to perceive it, or do they understand that “tight control” really means something different? A more probable interpretation is that the current closefisted, stingy management is cutting expenditures that don’t absolutely have to be made in the current quarter. For example, they may be deferring maintenance: letting the tread on auto tires wear thin, failing to repaint surfaces a t proper intervals, and the like. But, as we all recognize, reducing expenditures that way is false economy. Executives under pressure are sometimes tempted to cut research. No matter how rich the rewards from research, they almost always accrue years in the future. A cut in research expenditure will only reduce the outflow of funds in the current quarter. Happily, the quarterly report of the company of which we own a miniscule share assures us that research and development expenditure has actually been increased (by a little more than the rate of inflation). Nevertheless we fear that other executives who feel it necessary to present a glowing report of current earnings may reduce investment in research. One wonders whether the American tradition of quarterly reports from corporations really serves the interest of stockholders, a t least so far as technology companies are concerned. Joseph F. Bunnett
