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The business economist at work: change and evolution in Courtaulds.

*Donald Anderson is Chief Economist and Head of External Relations of Courtaulds plc, London. The views expressed are the author's and do not necessarily represent those of Courtaulds plc.

Many of the traditional economist's functions at Courtaulds have been dispersed to the decision-making centers. However, the Chief Economist, who also is Head of External Relations, is responsible for government and trade relations as well as those with investors and the press. In addition, he is editor of the annual report. Extensive use is made of outside resources, with internal responsibility maintained for forecasting and policy analysis. Because of the far-reaching nature of the company's operations, analysis must be done in an international context. The Chief Economist is professionally responsible to the Chairman and Chief Executive, but regular formal and informal communication is maintained with directors and senior management. However, the Chief Economist's duties are focused more on external than internal involvement.

ALTHOUGH IT DOES not and should not intrude upon the incumbent's activities, the economist in Courtaulds is the heir to a distinguished tradition. Courtaulds was one of the earliest companies in the U.K. to establish an economics department. In the three decades following World War 11 that department made notable contributions to the understanding of investment appraisal and the formulation of British - and later European trade policy. It also played a significant role in the development of Courtaulds from a rather sedate man-made fibers producer to the world's largest textile manufacturer, a position the company attained in the mid-1970s. The department then influenced the early stages of the subsequent extensive restructuring of the company, a process that culminated in the demerging of its textile activities as a separately quoted company in March 1990. (Now no textile activities remain within Courtaulds.)

Curiously little known outside its home country, Courtaulds is one of England's oldest manufacturing companies and has been a presence in the U.S. since 1909, although the continuity of the latter was broken for a while by the enforced sale of the original fiber plant as part of the wartime lend-lease arrangements. The company now employs 22,000 people in thirty-eight countries, of which the U.K. and U.S. are the most significant. The transatlantic affinities are reinforced by close connections with U. S. academia, including the sponsorship of a chair of polymer science at UCLA, and professional connections with Harvard and elsewhere.

Modest in size by the standards of the big chemical groups, Courtaulds specializes in developing strong positions in niche markets and replicating them internationally. It holds leading positions in the world markets for marine and yacht paint, powder coatings and aerospace sealants. It is among the U.S. market leaders in cellulosic fibers, rigid packaging (e.g., for toothpaste tubes), solar control films and decorative coatings. Its activities now embrace five groups of businesses, all based on polymer technology, ranging from coatings to films and fibers.


The restructuring of Courtaulds in the 1980s was accompanied by sweeping organizational change characterized by a devolution of management, in effect the development of a federal system out of a centrally planned organization. The results were profound. Courtaulds had enjoyed the anaesthesia of central planning for more than 160 years. With its demise, the formal economics department was disbanded, and most of its activities were dispersed to points more closely in touch with the new decision-making centers. Only the Chief Economist remained at the center, becoming part of a new public affairs department whose primary role was government and trade relations, and whose work was particularly oriented towards the Multi Fibre Arrangement, a matter of great importance to both the fibers and textiles activities. The Chief Economist's function itself was only marginally changed, with the conventional activities of forecasting, statistics, investment appraisal and industry and economic policy analysis continuing.

Nevertheless, the modus operandi changed sharply. Reflecting the sharp reduction in immediate support staff, much greater reliance was placed on the provision of services from outside. Forecasting became a question of the expert interpretation and development of material from external consultants, finance houses, research institutions and government. Statistics and market analysis, having been decentralized to the businesses, became an input rather than an activity. Like forecasting, industry analysis became a question of the analysis of externally supplied intelligence. Only the economic policy and investment appraisal activities continued largely unchanged, although the latter was increasingly conducted within a framework set by the new growing business development department, which was staffed largely by exiles from business strategy consultancies.

In one respect, however, the function itself did change substantially. The economics department had always provided an economics input to government and trade relations, at both top and working levels. This input had been independent. Now however it was sourced within the department responsible for representing the company in the relevant external forum, whether trade associations, the British government, or the European Commission. The Chief Economist increasingly found himself playing a front line, rather than a back-room role in such representation. Even though he might only be there in a secondary capacity, in the early years of the Thatcher Government this could be a demanding experience. It represented a crucial functional development, and one which could only have occurred in a culture prepared to endorse a commitment to a high level of credibility irrespective of the difficulties such frankness might occasionally entail for the company.

These developments paved the way for a further significant change. The increasing importance of relationships between enterprises and their shareholders led many British (and U.S.) companies to establish investor relations functions in the mid 1980s. Many treated such functions as a public relations responsibility, others as a role for a suitably extrovert accountant. A handful of companies, however, including Courtaulds, decided that neither of these disciplines was adequately equipped to explain the company in terms of its internal and external context and to mirror the financial analyst's perspective. Courtaulds duly concluded that this new function should be an extension of economics, and that the Chief Economist should adjust his orientation accordingly.[1] To facilitate this reorientation, investment appraisal was removed to a strengthened Financial Control department.

It worked. However, investor relations is no sinecure; it is the front line between the company and one of its most powerful external influences, one capable of determining the company's fortunes and, in the ultimate, its survival. The requirements of the investor relations function fall into four parts:
 1 A deep understanding of the company, its markets
 and the relationship of each to the wider
 2. the ability t6 communicate these effectively;
 3. the ability to perceive the company from the
 viewpoint of the financial community, and to
 interpret the market in the company's shares
 4. the swift execution of any action within the
 law that may be necessary to protect the company
 and its shareholders from unconstructive
 maneuvering by those who would seek exclusive
 gain. Investor Relations is thus by no
 means a backroom occupation; in extremis,
 decisions of some magnitude may have to be
 taken without the time or opportunity for consultation.

It is in fact a hybrid, its successful prosecution at anything other than a shallow level depending on the integration of a front-line function with financial understanding and with the backroom discipline of business economics. In a different way, the same is true of government relations.


The combination of economics with investor relations finally separated the character of the economics function from that it had enjoyed as a formal department, consolidating the change of direction that began with that department's dissolution. Subsequent staff changes have since led to further development. As Head of External Relations, the Chief Economist is now directly responsible for government and trade relations as well as investor relations, and for associated press and media relations (excluding those related to publicity, products and exhibitions). The latter activity is largely concentrated on the economic and financial press, although environmental and social concerns are increasingly intrusive. A related responsibility is to act as editor of the annual Report and Accounts, an arduous and extensive task lightened by contact with the London design community, whose style and discipline is remote from that normally encountered in a large manufacturing organization.

The economics component of the function reflects its contemporary role. The macroeconomic forecasting element remains, essentially as an input to planning and budgets and to a lesser extent to labor negotiations. There is now however a heavy concentration on political economy: the conduct of maeroeconomic policy in the major OECD economies, its critical influence on exchange and interest rates and their influence in turn, direct and indirect, on the competitive position of the company and its businesses. Forecasting for the latter is the responsibility of the businesses themselves, and its importance varies according to those businesses' characteristics. In the capital-intensive fibers business, where models are used, results are taken to a high level of detail. The powder coatings business in contrast has a growth rate of around 25 percent per annum and a flexible technology; economic forecasts have correspondingly less relevance. International economics continues to be a preoccupation, particularly with reference to the formation and conduct of trade policy and of course exchange and interest rates. The latter are discussed regularly with the Treasurer, next to whose dealing room the Chief Economist's office is situated. (And incidentally on whose Reuter's screens the London share price is checked.) Finally, the related issues of the development of the European Community, the impact of the liberalization of Central and Eastern Europe, and the implications for North America, Japan and the Newly Industrializing Countries are kept under review. Staffing, at three, is modest, but the figure is misleading, as much input is obtained from other professionals within the businesses.

The dissemination of this work within the company is, with the exception of budget forecasts, remarkably informal. Advice is frequently verbal, or written in stacatto form following discussion. The latter may be with any of the company's 130 senior managers; direct communication is encouraged and is commonplace. Written briefs are of course prepared for occasions that warrant them, such as the Chairman's meetings with the Prime Minister or senior government ministers. Although much of the content of such encounters has to be private, feedback can be very valuable. The Prime Minister for instance can be relied upon to correct with admirable clarity any interpretation she feels to be unsound.

Such internal applications however are in a minority. Most of the work is undertaken in support of external relations activities, where it is immensely beneficial. Apart from its primary relevance in the formulation and presentation of policy positions, it adds a depth to discussion with the financial community in the City which would not otherwise be possible, and confers similar status on the company's involvement in external bodies ranging from research institutes to trade associations. The latter can be particularly significant. They carry much of the weight of representations to government but lacking many resources must rely (at least in Europe) for sophistication and hence for credibility on inputs from major member companies. The trade associations are critically important in fibers, whose supplier relationship to the textiles and apparel industries can lead to exposure to the results of ineptitudes of international trade policy. The Chief Economist fulfils this obligation on behalf of Courtaulds by chairing the Economic Policy Committee of CIRFS, the Paris-based European Man made Fibers Association, which is responsible among other things for formulating the European fibers industry's position in this area.[2] He also chairs the Confederation of British Industry's GATT Working Party, which formulates U.K. industry's policy towards the Uruguay Round.

Discussions with officials and economists in London, Brussels, Geneva, and Washington are part of such activities. Active external involvement includes the Royal Institute of International Affairs (RIIA); the Policy Studies Institute (which resembles the Brookings Institution); the Society of Business Economists (SBE) and EuroFABE; and the Investor Relations Society. Limitations of time and the imperative of adjusting activities in the light of priorities curtail the degree of such involvement. Most active are the RIIA, which has an extensive research program, and the SBE. Occasional lectures on economic topics are also undertaken at, for instance, the London school of the American University and the University of Neuchatel in Switzerland. Internal presentations are likewise given when time permits; these are usually on investor relations. Finally, there are informal discussions with other economists, ranging from regular meetings at the Bank of England to small luncheon groups. These serve an essential role keeping abreast of current thinking.


In reflection of its devolved structure, the organization tree in Courtaulds is very shallow.

The company is managed on only three levels: front line profit centers at the elemental interface between the company and the customer; "directly reporting businesses," of which there are twenty three, which are the principal points of line management; and the center, which is concerned with the company as a whole.

The center is focused on the Group Executive, to which the directly reporting businesses are responsible. Under the overall guidance of the Chairman and Chief Executive, the Group Executive comprises the Chief Operating Officer, all the executive directors, and four equivalent-level managers, including the directors of human resources and corporate communications, and the financial controller.

The Chief Economist is responsible professionally to the Chairman and Chief Executive, with whom he is in frequent and informal contact. He is also however responsible for his function to the Group Executive as a whole, reporting to it through the Director of Corporate Communications. Formality is not a feature of Courtaulds culture. The emphasis is on communication both vertical and horizontal as an essential component of management, and in consequence the intrusion of mechanistic reporting relationships is deliberately limited. The Chief Economist deals directly in a fluid and egalitarian way with directors and senior management, and it is his responsibility to resolve any conflicts of interest that may arise as a result of this organic structure. He is also of course responsible for the performance of his function. This would be agreeably intangible, were it not for the priority given to investor relations, where performance can be both quantified (via the share price) and uncomfortably visible, especially on a bad day.


But in practice only a few days are bad, and some can be very good. It is a long way from backroom analysis to the contemporary exposure, but it is an increasingly common journey in the profession, even though not always as explicit as in Courtaulds. Integrity in such a dual capacity can only be possible within an organic organization committed, sometimes controversially, to credibility.

Some things, such as the time to conduct the research to establish economic relationships, are lost; they have to be left to those closer to the individual businesses or be commissioned from consultants. The coordination needed for government relations can be long and tedious, and the priority that attaches to investor relations has a price for its privileges, e.g., of missed meetings and conferences, for instance, in times of acquisitions or disposals or volatility. But there are real gains to compensate: those of involvement, of commitment and depth and responsibility, and of the satisfaction of a different kind of achievement.

On balance, they win. FOOTNOTES

1. Presumably Monsanto Company concluded likewise; see Filippello in Business Economics, Vol. XXIII No. 3, pp. 27 to 32.

2. In fact like its counterpart in the U. S., AFMA, CIRFS is a sophisticated organization in its own right and very ably directed; it commands wide respect in both industry and government. Although many trade associations are similarly well directed, most cannot replicate the sophistication of CIRFS and AFMA.
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Author:Anderson, Donald
Publication:Business Economics
Article Type:company profile
Date:Apr 1, 1990
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