Chain reaction that burned out ICI

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Farewell to ICI, Britain’s leading industrial company for most of the 20th century. As a national institution, ICI nurtured some of Britain’s best management talent and developed the skills and knowledge behind the country’s most successful postwar industry.

Farewell to ICI, Britain’s leading industrial company for most of the 20th century. The splintered rump has now been acquired by the Dutch company Akzo Nobel.

ICI was formed in 1926 by the merger of Nobel Industries, United Alkali, British Dyestuffs and Brunner, Mond. In the uncompetitive manner of those times, American, German and British companies – Du Pont, IG Farben and ICI – divided the world into spheres of influence. ICI’s markets were the British empire and Commonwealth and the company’s strengths and background were in dyestuffs and explosives.

For decades, ICI was an institution. The business purpose was described in the company’s 1987 annual report: “To serve customers internationally through the innovative and responsible application of chemistry and related sciences.” Those applications changed as technology and consumer needs evolved. In the early years of ICI, explosives and dyestuffs declined and fertilisers and petrochemicals took their place.

In the postwar era, pharmacology opened a new frontier. ICI was the most effective of the global groups in managing the transition. Du Pont failed in drugs. The successor companies to IG Farben did better. But Hoffman-La Roche’s discovery of tranquillisers put that company in pole position among the pharmaceutical companies of continental Europe.

ICI’s pharmaceutical business succeeded through the calibre of its people and the farsightedness of its strategy. ICI was then one of a relatively small number of important British companies with a reputation for valuing intellect which enabled them to attract outstanding graduates.

The most important recruit was a young chemistry lecturer named James Black, who discovered beta-blockers, the first effective anti-hypertensive drug. The board of ICI accepted losses in pharmaceuticals for 20 years, in the conviction that drugs would eventually provide future sales and profits growth. Only after two decades was this belief vindicated through the commercialisation of Black’s discovery. Through his subsequent work for SmithKline, and the influence of his work on Glaxo, Black was the architect of Britain’s broader success in the industry.

Successful institutions grow fat and lazy, which ICI did. Perceiving a need for change, in 1982 the board made the unexpected appointment of John Harvey-Jones, a former naval officer, as chief executive. Harvey-Jones gave a jolt to a complacent culture. But his years proved the beginning of the path from national institution in the 1980s to ordinary company in the 1990s, to oblivion now.

In 1991, Lord Hanson’s eponymous company bought a 3 per cent stake in ICI. Lobbying of politicians and investment institutions saw off the threat. But the company was, for the first time, answerable to the City and beholden to its investment bankers.

They came up with a scheme for hiving off the pharmaceutical business (now the Zeneca in AstraZeneca) at an elevated price/earnings ratio. ICI’s historical strategy of using the cash flow from mature chemical businesses to finance the development of innovative ones came to an end. By 1994, the mission was to focus on businesses “where we have market leadership, a technological edge and a world competitive cost base”.

ICI was left with traditional, now cyclical and slow-growing, heavy chemical businesses. A new management team and its advisers devised a familiar 1990s strategy: to sell off boring bits to fund exciting acquisitions. But it was easier to overpay for new businesses than to make rewarding disposals of old ones. That process, which killed Britain’s second-largest industrial company, GEC, proved almost as disastrous for its largest. The Akzo offer gives share- holders a respectable exit and ends an 80-year episode of industrial history.

As a national institution, ICI nurtured some of Britain’s best management talent and developed the skills and knowledge behind the country’s most successful postwar industry. But in Britain – less often elsewhere – companies are no longer institutions, but creatures of the capital market. This is a policy choice we may one day regret.

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