business
ICI's Hampel Wins SCI Centenary Medal Medalist's career over 41 years spans ICI split, changes in industry inventiveness Patricia L. Layman C&EN London
meet, in whichever country, "has to be your lowest acceptable standard." "You cannot underestimate," he stress ix years after Ronnie C. Hampel es, "the problems my predecessors had in started working with British chemi convincing, say, the U.K. workforce that it cal company ICI, an ICI executive vis was crucial for ICI's future to invest out iting the junior manager at his post in Ken side [Britain]. It wasn't in a U.K. worker's ya told him he would never succeed at interests—or in his children's." They ICI—he didn't have a chemical education. could see, he says, that the company was ' Ί wish I could say that I said to myself, bound to trim workers in the U.K., which 'I'll show them,' but really, it was 'Cor, it has done relentlessly—from 132,000 out have I made a mistake?' " Hampel recalls of a worldwide total of about 190,000 in asking himself at the time. But that was a 1973 to 17,700 out of a total of roughly long time ago for the man who studied 64,000 worldwide last year. modern languages and law at Cambridge That the geographical expansion of the University. This week, Sir Ronald Ham company was accomplished, he says, "is a pel—now the chairman of ICI—receives great tribute to the people who did it. It the Centenary Medal from the London- took nonstop explanations of the industri based Society of Chemical Industry, for his al logic, and nonstop care of the industrial accomplishments in the chemical industry relations. We've been lucky enough to since joining the company in 1955. deal with the unfortunate effects of [re In a wide-ranging interview with C&EN ducing] the workforce here in a construc earlier this month, Hampel touched on a tive manner. It isn't easy." variety of subjects, including how the The geographical moves of ICI—and chemical industry has changed over the other European companies—mirror sev past 20 to 30 years, with some hints as to eral other major developments in the where it is going in the next century. chemical industry, according to Hampel. He also recalled the company assign For example, "In the 30 years post ments that in the 1970s took him to ICI's [World War II], the chemical industry offices in Wilmington, Del. As one of the first Britons to work at ICI in Wilming ton, his tasks included convincing his American colleagues to call him Ronnie, not Ron, and that his requests—even trivial ones for a fresh pencil, for exam ple—need not lead to a resurgence of the Revolutionary War. ICI's decision in the 1970s to build up its operations in the U.S. and elsewhere in the Americas was part of a strategic decision of the company's managers at the time to broaden its interests away from a U.K. focus. Those managers realized early on, he says, that "companies of our type—with a significant technology investment, and with a small domestic market—have to be global to survive. Being national is irrele vant, in that respect." Moreover, he adds, "you have to operate at a single standard": The highest standard a company has to Hampel: set, maintain high standards
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ICI at a glance Headquarters: London Sales: $16.4 billion in 1996 Net profits: $429 million Employees: 64,000 Capital spending: $1.60 billion R&D spending: $298 million Major business divisions (sales in 1996—includes interdivisional sales): Paints ($3.80 billion); polymer materi als—acrylics, urethanes, and polyes ter film ($3.31 billion); explosives ($1.26 billion); industrial chemicals ($6.31 billion); regional businesses— Australia, Canada, Argentina, India, and Pakistan ($2.62 billion)
grew like Topsy." It depended on what he sees as "the inventive capacity of its scien tists—there were no industries for phar maceuticals, no polymers, no agricultural chemicals, and so on, before that time." A company such as ICI developed these product areas "because of the inven tive capacity of the scientists, not because of someone saying it would be nice to be in thosefields,"he says. "Some companies did better than others in different things. My guess is that it has something to do with the bias of the chemical skills and the impetus given them by the managers run ning the companies at the time," as to what fields companies developed as they built broad, diversified product portfolios. "Now, the number of whole new businesses to be developed will be less," he predicts. "So the ability of business to save itself from effects of cycles [by building ever-more diversified portfolios] will be diminished. We are developing substitutes for existing products, not whole new businesses." The result? "The ability to develop whole new businesses has had to be re placed by focus and efficiency: real pro ductivity and real efficiency in the mar ketplace. We used to believe that any thing we made, we could sell," which in the early postwar period was, indeed, true. "But if we had done it smarter, we would have done even better. The mis takes we've made have been about the marketplace, not the technology." In addition to the chemical industry's losing the capability of creating new ar eas, he points out that "a lot of postwar capital investment [in Western Europe] is beginning to become obsolescent. It is
no longer competitive capital, and people will have to restructure out of it. "What we will see is a restructuring of the industry, leaving two or three major, dominant players in a few areas," Hampel predicts. "People will get out, sell out, swap out, because the industry is now global, not regional. We [at ICI] will play a part in that—we have already," he says, alluding to the asset swaps the company has done in the past several years. "Not that we're particularly clever, but pressures in the U.K. have been particularly strong." Among such pressures have been those from the financial community looking at the relatively small market of the U.K., with the attendant heavy attention paid ICI, which is nearly 10 times larger than the second-largest independent chemical company in the U.K., Laporte. The company's consequent relationship with the U.K. investment community has occasionally been erratic—and exasperating. "To explain the chemical industry cycle in the context of the U.K. is difficult," Hampel says. "I think things will changeinvestment markets will be global, as well." Financial analysts will be better able to compare ICI's performance with that of other chemical majors around the world, looking at the industry's cycles. They will then accept, he suggests, that the point is not trying to buck the cycle but to manage it well, which he thinks ICI has done. If the company hadn't, he says, "it would have had pretax profits over the past four years of roughly [$500 million, $950 million, $1.4 billion, and $450 million]—rather than [$500 million, $950 million, $1.4billion, and $950million]"—as the cycle turned down last year. "No chemical company, in whatever end of the business, can escape the cycle," and that should govern companies compared by financial analysts, he contends. "For example, in purified terephthalic acid, I want to be compared to Amoco," the Chicago-based producer with the world's largest production capacity of that compound. "But the difficulty the analysts have is that neither of us publish detailed figures on that business. The portfolios of no two companies are identical, yet the external world wants everything in simple terms—a one-product company would be ideal." For a diversified company, Hampel believes, "the decision is: Do you split them? That is the question you have to cope with, not what structure you have." To split or not to split is a question that ICI managers grappled with in the early
1990s, capping a period that began with the threat of a hostile takeover bid from British conglomerate Hanson Industries—a threat that never materialized. "In the old mix," he recalls, "we were always blamed for not explaining things. When we demerged, there was more information in the public domain about ICI and Zeneca than for almost any other company in the world." Zeneca was fully covered, for example, in the hefty documents making up the prospectus for its stock market launch. Yet even with all that information available, Hampel says, "it took nearly two years for Zeneca's share price to move above ICI's"—unusual, given that shares of pharmaceutical companies typically are more highly prized by the stock market than those of chemical companies. "The historical complaint [about lack of specific financial information], I had some sympathy with. But afterward—it was all there. Then the financial analysts said, 'We don't believe it.' Where do you go from there?" he asks in exasperation. "How do we get the market to properly value cyclical companies? I don't know the answer." As the company has expanded its geographical interests, it has become more fully part of the international investment world, Hampel says. Up to fairly recently, he says, that could prove an unreliable source of support: By and large, investors in international holdings have "run for cover when trouble appeared," liquidating foreign funds to come back to the safety of domestic holdings. However, he sees a change on the horizon: Because the investment community is under pressure, it will become more global. Investors will buy international shares and hold them more than before; owners—for example, pension fundswill be more comfortable with global holdings. He figures that now 10 to 12% of ICI's shares are held in the U.S., and he predicts that within 10 years, that will be closer to 50%. Investors' comparisons will be of global performance, he predicts, and managers' performance over time. And he suggests that, contrary to immediate impressions, "there actually might be advantages to performing at the average," rather than above average; high-flying companies can too easily crash. "The essence of management is to be long term, to create a structure to last for a long time. We must be balanced about it." Financial investors are now seeking international balance, but chemical companies have been going down that road for
years, Hampel says. "There isn't a sector of the chemical industry that is not global. People who've been in the business for a long time look at the world market: You place investment where the market is. "Some Asian companies start domestically—they see the markets developing there. They don't yet have the experience of managing cycles that we have had, so the impact of cycles is stronger. They are very long term in their decisions, however," he points out. "They are starting domestically. But the players in the big fields recognize global markets, and they will invest 'abroad,' too." Those kinds of investments are already coming through: Asian automakers and electronics producers, for example, are beginning to invest in South America, Europe, and the U.S., as well as in the Asia-Pacific region. One major factor affecting the cycles in Western Europe, it could be argued, is the working of the European Union. Or more accurately, Hampel grumbles, its nonworking. "I want one Common Market to work properly. If you look at it, it doesn't work properly," he argues. "You have to compare it to the U.S. [You must] aim to get common policies across Europe." That's the end result; a single currency and a single language might follow, but in time, as the need develops. He says: "All of us have seen national governments work against a common policy. The ideals of the Common Market have never been brought about. The European Commission tends to get caught up in peripheral things," he adds. "For example, why should they worry about whether I get milk deliveries at home rather than at the supermarket? What is much more important is that energy costs differ all over Europe, distorting trade. The European Union has never had a common energy policy: that's the point." According to Hampel, the most significant change taking place in the chemical industry over the past 20 years has been an evolution from an industry that in its early days was based on continuous new inventions that took companies into new areas. "That phase is over," he says. "The industry is no longer fundamentally inventive." That, in turn, leaves a chemical industry faced with the next steps: consolidation and focus. Increasing competition and efficiency are leading to what he sees as an "enormous amount of realignment taking place." His prediction: The turmoil of that realignment will have to continue into the new millennium.^ APRIL 21, 1997 C&EN 27
