ICI: the investment fund

John Kay mourns the decline of ICI, now taken over by Akzo Nobel.

The products, the jobs, and the profits that old ICI used to make are all still going. What has gone -- and what Kay is specifically mourning for, is the old ICI management organisation.

The heart of his argument is this:
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.
Old ICI financed research out of its manufacturing profits. To my young mind, this seems an odd arrangement. Financing new business is the job of financiers, not manufacturers.

Kay picked one example of where the old arrangement worked well, but to me it sounds dreadfully fragile. If development of pharmaceuticals is the responsibility of the paint industry, then a bad couple of years in the paint market would mean no development. If managers of the paint industry feel themselves mainly responsible for development of other industries, they are likely to be less effective managing the paint.

Kay does not seem to be making the argument that investment in future industries is not happening - and indeed it is happening, in Britain, and elsewhere, but the investments are being made by specialist venture capitalists drawing on the broader capital markets, not by managers of other industries having a flutter with their firm's profits.

There are several reasons why such investment funds (random example from Google) would be expected to do it better -- they are specialists, they have wider access to capital. Today we see a great deal of investment into early-stage development of potential future chemistry-related industries.

The only reason why the old ICI model might be better would be if the successful managers in one industry, were, by virtue of their position and proven technical expertise, the best placed to make decisions about investment in future industries. If this were ever the case, it is by now much less so - it has been widely observed that the advance of science and technology has meant that specialisations become ever more narrow.

The story Kay tells of ICI sounds to me not so much a model to be emulated, but the rare exception to the story he has told many times, and more convincingly, of megalomaniac bosses trying to turn their companies into something else. See on Swissair, on HP, on BT -- "policy making in business requires more than slogans and visions". "Dreams are no basis for a sound corporate strategy". That one dreamer got lucky at ICI in the 1960s does not shake the wisdom in those other columns.