6
Basic Research Automation \ i| Public Relations ^ Tariff arid Trader Depreciation Nevv Tax ta>v Sales Performance "Corporate Co Eight pane! discussipris on these subjects at Manufacturing Chemists' Association semiannual meeting and winter conference outline what you should be doing r^ LL Basic Research What It Is and What We Should Do About It RASSWEILER . . . If we are to continue our present rate of industrial growth, we must supply our industrial research people with a flow of new information which is adequate in both volume and diversity. SWAIN . . . While most research work has definite ele- ments of financial risk, a continually increasing reservoir oj new knowledge can increase the odds in favor of success on any given project. DUNNING . . . The really significant change in the Soviet Union is the transfer of management from revolutionists to scientists and engineers. The quantitative investigation of how nature behaves is the whole keynote of the development of scientific research. Speakers at Panel 1, on basic research, at the winter meeting of MCA in New York, were Clifford F. Rassweiler of Johns Man· ville, Robert C. Swain of American Cyanarnid, and John R. Dunning (right of Columbia University TNFORMATION rather than new products and processes is the -•· goal of basic research. Without this raw material in- formation the flow of new commercial ideas will stop be- cause the sources are dried up. Although information as such has no commercial value, industrial research cannot survive without it. Industry therefore has a responsibility to stimulate and perpetuate fundamental information-pro- ducing research. Today the stockpile of basic knowledge is being used faster than it is produced. Research units associated with universities could be set up around outstanding men after the classical European tradition. Industry must share support of such projects, and might well foster, sponsor, and finance them. Benefits would be twofold; more fundamental information, better scientists. About 4000 institutes of this type have now been set up in Russia, where they are entirely state-supported. Product and process research produce much information oi a fundamental nature, not directly concerned with a specific commercial objective. Often lost, this valuable knowledge could be saved by increased emphasis on proper permanent research reports, better filing and cross filing. Many research projects of a truly basic nature are best carried on in an industrial laboratory. It may be obvious that commercial progress in a field important to a compan> is stymied by lack of fundamental information. It would then be highly desirable for the company to support re- search specifically designed to produce information in the deficient field. The role of the Government in supporting basic and applied research by both industry and university is becom- ing more and more important. The situation is fast ap- proaching socialized research. The trend toward support of basic research by industry must be accelerated, both to preserve a balance with government-sponsored work and to help meet the desperately serious challenge of state- sponsored Soviet research. The program of development of Russian science and technology has been amazingly efficient. 4824 CHEMICAL AND ENGINEERING NEWS What Are You Doing About ffi^i

What Are You Doing About

Embed Size (px)

Citation preview

Page 1: What Are You Doing About

Basic Research Automat ion \ i|

Public Relations ^ Tariff ar id Trader

Depreciation Nevv Tax ta>v

Sales Performance "Corporate Co

Eight pane! discussipris on these subjects at Manufactur ing Chemists' Association semiannual meeting and winter conference outline what you should be do ing r̂

LL

Basic Research — What It Is and What We Should Do About It

RASSWEILER . . . If we are to continue our present rate of industrial growth, we must supply our industrial research people with a flow of new information which is adequate in both volume and diversity.

SWAIN . . . While most research work has definite ele­ments of financial risk, a continually increasing reservoir oj new knowledge can increase the odds in favor of success on any given project.

DUNNING . . . The really significant change in the Soviet Union is the transfer of management from revolutionists to scientists and engineers. The quantitative investigation of how nature behaves is the whole keynote of the development of scientific research.

Speakers at Panel 1, on basic research, at the winter meeting of MCA in New York, were Clifford F. Rassweiler of Johns Man· ville, Robert C. Swain of American Cyanarnid, and John R. Dunning (right of Columbia University

TNFORMATION rather than new products and processes is the -•· goal of basic research. Without this raw material in­formation the flow of new commercial ideas will stop be­cause the sources are dried up. Although information as such has no commercial value, industrial research cannot survive without it. Industry therefore has a responsibility to stimulate and perpetuate fundamental information-pro­ducing research. Today the stockpile of basic knowledge is being used faster than it is produced.

Research units associated with universities could be set up around outstanding men after the classical European tradition. Industry must share support of such projects, and might well foster, sponsor, and finance them. Benefits would be twofold; more fundamental information, better scientists. About 4000 institutes of this type have now been set up in Russia, where they are entirely state-supported. Product and process research produce much information oi a fundamental nature, not directly concerned with a specific commercial objective. Often lost, this valuable knowledge could be saved by increased emphasis on proper permanent research reports, better filing and cross filing.

Many research projects of a truly basic nature are best carried on in an industrial laboratory. It may be obvious that commercial progress in a field important to a compan> is stymied by lack of fundamental information. It would then be highly desirable for the company to support re­search specifically designed to produce information in the deficient field.

The role of the Government in supporting basic and applied research by both industry and university is becom­ing more and more important. The situation is fast ap­proaching socialized research. The trend toward support of basic research by industry must be accelerated, both to preserve a balance with government-sponsored work and to help meet the desperately serious challenge of state-sponsored Soviet research. The program of development of Russian science and technology has been amazingly efficient.

4824 C H E M I C A L A N D E N G I N E E R I N G N E W S

What Are You

Doing About ffi^i

Page 2: What Are You Doing About

At panel on public relations at the plant community level, speakers were Emery N. Cleaves (left) of Celanese, Harold Brayman of Du Pont, Henry J. Taylor, journalist, Arthur Smith, Jr., of Dow, and Franklyn Waltman of Sun Oil

Public Relations at the Plant Community Level

CLEAVES . . . Chemical Progress Week is a valuable instru­ment for good community refotions in the chemical indus­try. . . . Participation is only one Chemical Progress Week should leave an individual company with a trained group competent to carry on its own public regions program from that point.

BRAYMAN . . . Business executives should exercise their leadership as molders of public opinion in their own com­munities.

TAYLOR . . . Companies have a special problem when they are not locally owned. There are always people who will accuse them of taking money out of the community . . . Dont underestimate the importance of an individual's strong loyalty to his own community.

SMITH . . . The success of a public relations program is dependent on the attitudes and skilh of the people involved —on the degree of participation in it by executive manage­ment, on the sincerity and determination with which the management pursues the objectives set forth, and on the skill of the person or persons assigned the responsibility for carrying out the program.

WALTMAN . . . One of the most difficult questions is who actually are the opinion molders in a community. In reality, they may be the barbers and bartenders in town, and not just the editors, church leaders, and other people customarily regarded as opinion molders.

COMMUNITY RELATIONS is a process of establishing good will. It is a day-to-day relationship continuing seven

days a week, 52 weeks a year. It means being a part of the community, being proud of the community, and making the employees proud that the company is part of the community.

In any community relations program, effectiveness is in direct proportion to the support given to it and the degree of participation in it by executive management. One ob­jective of such a program should be greater participation

by company personnel in projects for community betterment. This work can be effectively carried out through recognized organizations in the community—the chamber of commerce, service clubs, and other community groups.

In its community relations program, the company can give financial support to worthwhile community activities. It can set up a speakers bureau. It can circulate company movies, install educational displays in the schools, organize plant tours, and sponsor youth activities. It can promote the educational and cultural life of the community and co­operate with the local authorities in meeting community problems.

The cornerstone of a good community relations program is an established information center actively engaged in the dissemination of information. This center should be the prime point of contact for queries from the press, radio, and the general public.

One approach used by the oil industry to promote good community relations is i ts annual Oil Progress Week. This special week is carefully pitched at the community level. Experience has sho^vn that the interest aroused by Oil Progress Week serves as a kick-off for an on-going com­munity relations program throughout the year.

Also highly successful has been Chemical Progress Week, held for the first time this year. This MCA project very ably brought the story of the chemical industry to people through their own communities. It provided an opportunity for concerted action. All types of companies, large and small, with the widest diversity of products, were able to participate with a common purpose in a nationwide effort.

Depreciation as related to investment and measurement of income was discussed by George Terborgh (left), Machinery & Allied Products Institute, James L. Dohr, Columbia, S. T. Crossland, Ethyl Corp., and Paul Grady, Price, Waterhouse & Co.

Financial Management and the Conserva­tion of Productive Capital

TERBORGH . m . There has been a growing realization in recent years of the importance of depreciation, and the trend is definitely toward its liberalization. Since World War 11, a number of countries have increased their tax allow­ances in one way c*r another.

DOHR . . . I have no faith in the present "stability."

V O L U M E 3 2, NO. 49 · D E C E M B E R 6, 19 54 4 8 2 5

Page 3: What Are You Doing About

GRADY . . . The full employment obligations now imposed by statute on the Federal Government would cause anij Congress to be concerned at the risks of washing out $70 billion of established productive plant facilities without ade­quate provision for replacement.

TMPORTANCE OF DEPRECIATION allowances stems primarily -* from their role in financing productive capital formation. The funds they make available when earned account for about one half of the fixed capital expenditures of American industry. There has been a growing realization in recent years of the importance of depreciation, and the trend is definitely toward its liberalization, both in the U. S. and abroad.

One reason for this trend: The levels of corporate and personal income taxation now in effect have greatly reduced the capacity of the community to save from tax-paid income. This has threatened to dry up an essential source of funds for capital expansion and to afflict industry with chronic financial anemia. The long-range consequences of such a condition no responsible government can contemplate with equanimity.

Depreciation as a rule is limited cumulatively to the number of dollars invested in an asset, regardless of differ­ences in the purchasing power of the dollars recovered. This can be seriously inadequate during and after periods of inflation. If a company invests 100-cent dollars and re­covers later only an equal number of 50-cent dollars, it has lost one-half of its real capital, whatever the books may show. To protect its real capital, a company must recover each year a sufficient number of current dollars to equal that year's depreciation in terms of original dollar it invested.

Chemical companies can do several things to assure that productive capital will not be dissipated. Make an appro­priate "aging" of depreciable plant investment, and using the general price index, determine cost of plant investment and annual depreciation cost in terms of current dollars. Use this information in determining your product costs. Where difference between current dollar cost of annual depreciation and the depreciation shown in financial state­ments is substantial, companies should make ample dis­closure in footnotes.

Application of Scientific Method to Measuring Sales Performance

WYATT . . · While the ball carrier gets the glory, the other men on the team are just as important to the score. We do not regard a sale as a personal achievement of one man, but the cumulative result of the efforts of many.

ALEXANDER . . . In selling, many of the most important factors are intangible and immeasurable.

EVANS . . · The chemical business is concerned u>ith three considerations: volume, customer relations, and profitability. Ideal keys for judging sales performance are a combination of sales quotas, personal observations, and sales-expense ratios.

/-T1HE SALESMAN'S FIRST DUTY is to hold established business •*- and to expand his share in split accounts, if possible. His next duty is to obtain new business. His first two duties are susceptible to straightforward mathematical performance

Talks by L. K. Wyatt (left) of Du Pont, Ralph Alexander of Columbia University, and Carl Evans of Monsanto were featured at session of application of scientific methods of measur­ing sales performance at MCA meeting and conference

calculations. But how can a salesman prevent loss of busi­ness because of process changes in the customer's plant? What can he do when a competitor builds a plant next door to his customer and puts in pipeline delivery service, thus ehminating outside competition? So many borderline cases arise in the course of practical business operations that a simple formula for evaluating sales performance is difficult if not impossible to obtain.

The principal uncontrollable factors affecting sales per­formance are territorial difference in potential, competitive conditions, physical differences in territories, and the volume of windfall business. As is generally agreed, improved rela­tive sales performance should be rewarded. For example, if a salesman's participation in his industry's business in his territory shows an increase from some base period, he is doing a better sales job competitively and should be recog­nized.

Industry sales figures for a great many chemical products are available. It is easy to determine what percentage of an industry's business was accounted for by a particular sales­man during a given year. This figure becomes his par. In the following year, he is paid a bonus to the extent that his sales exceed par.

This approach answers some of the objections of other incentive systems. Each salesman's performance is not related to the performance of other salesmen in other terri­tories, who may be working under more favorable condi­tions of potential, size of territory, or geographical distribu­tion of accounts. Each salesman is judged only against his own performance in relation to the industry during the base period and under reasonably identical conditions. Under this plan, changes in general economic conditions within his industry, 'which affect measurement of sales performance in some incentive plans, do not affect the measurement of the salesman's performance under this plan.

The success of any sales program depends on the proper selection of the men to do the job. This requires the very careful interviewing of applicants. It also requires the sub­sequent periodic assessment of the man's performance in the field. A fair, humane evaluation should be made of the man's performance and potentialities.

An important function of a salesman is to watch for chang­ing business conditions that may favorably or adversely affect his company's sales efforts. A salesman alert to the significance of all he hears and observes is far more valuable than one who is just a good fellow with the purchasing agents.

4 8 2 6 C H E M I C A L A N D E N G I N E E R I N G N E W S

Page 4: What Are You Doing About

Automation was the subject of the group—Victor F. Hanson of Du Pont, Eger Murphree of Standard Oil Development, and Thomas J. Walsh (right) of Case Institute of Technology— making up Panel 5 at the recent MCA meeting in New York

Application of Automation to the Chemical Industry

WALSH . . . No machine is better than the brains that go into its construction and instruction.

MURPHREE . . . The incentive for the further development of automation is to conduct operations closer to optimum conditions rather than reduce operating personnel. 'With more complex instrumentation the total force may actually increase rather than decrease.

HANSON . . » In a modern chemical plant, things happen so fast and in so many places that a human being cannot possibly gather all the information and take action within the necessary time limits. Vlants built within the L·st four to five years have 7 to 8% of their plant investment in instru­mentation, as contrasted with less than 1% 20 years ago.

qpHE ONLY PROCESSES that could not benefit from an auto-·*· mation program are those now producing 100% pure

material with zero labor cost. Commercially available in­struments and controllers are capable of supplying u p to 90% of the needs of present day chemical plants. The addi­tional critical 10% represent a fertile field for development. This work will probably devolve to the chemical company that needs a specific instrument; development costs would not justify effort by an instrument company where there is a strictly limited demand.

Safety was the original impetus for automation, but today economic considerations are the big attraction. The chemi­cal industry has been using automation for years; what is now needed is a high speed computer to solve the relatively simple equations involved in a chemical process. Such a machine can aid the operator in deterrnining proper set points for best operation under any conditions, even when the operator has not experienced these conditions pre­viously. With proper servomechanisms the machines could set control points by themselves.

Top management must recognize the competitive impor­tance of automation and insist that its operating divisions de­velop programs to exploit the new techniques. Technical and nontechnical personnel must be trained to cope with

the problems arising from more complex instrumentation. Continuous analysis of liquids and solids lags far behind

in instrumentation; is now benefiting from intensive re­search. By increasing the power of man's brains through the use of automation the standard of living might be in­creased by a factor of a hundred, rather than the tenfold increase accomplished by increasing his muscle power through the development of machines.

The Tariff and International Trade

SINGER . . . The GATT is one of these international insti­tutions responsible for the concern which led to the (pro­posed) Bricker Amendment to the Constitution.

LLOYD . . . It would not be surprising if our exports of chemicals decreased still further. Even at present tariQ levels we cart expect increased competition from chemical imports. The key here will largely be the speed with which foreign producers expand their capacity.

UNITED STATES foreign trade has been increasing dollar-wise but progressively decreasing percentage-wise in

importance. In 1800 it was 12% of the nation's business. In 1875 it had fallen to 6%, and in die fifties it has been 3 % or less of our gross national product. In the last cen­tury, domestic commerce grew much more rapidly than our foreign commerce, and our need for exports and imports de­creased.

As to chemicals, organic imports have increased rapidly while exports have decreased slightly. In 1953 exports of organic chemicals were less than in any year since 1946. On the other hand, imports have increased b y more than 500% since 1948. The United Kingdom, Germany, other industrial nations, have expanded their chemical shipments to the United States. On the basis of dollar values w e are as yet importing about only one fifth as much as our organic chemical exports.

Data indicate that the foreign market for our organic chemicals is not expanding and only expanding slightly for total chemicals. As to the future, we can expect the trends to continue on both exports and imports. Imports will con­tinue to rise and exports will decrease, perhaps at a faster

Speakers at the panel on tariff and international trade and future prospects were Richard F. Hansen (left), Allied Chemical & Dye, L. E. Lloyd, Dow Chemical, John J. Horan, Merck and Co., and Fred G. Singer, Du Pont

V O L U M E - 3 2 , N O . 49 · D E C E M B E R 6. 1 9 5 4 4 8 2 7

Page 5: What Are You Doing About

rate. The whole problem is closely related to chemical producing capacity in foreign countries.

Objectives of the General Agreement on Tariffs and Trade subscribed to by this government are: (1) raising the standards of living; (2) ensuring full employment; (3) ensuring growing volume of real income and effective de­mand; (4) developing full uses and resources of the world; and (5 ) expanding the production and exchange of goods. GATT has held eight sessions by contracting parties. The ninth with 34 governments participating, is being held at this moment in Geneva.

GATT plays a useful role as a forum for discussion and for settlement of complaints, through recommendations, of complaints between countries on trade practices.

Discussing the new tax law ^vere Thomas P. Dudley Jr., (left) of Allied Chemical, Kenneth W. Gemmill, Barnes, Dechert, Price, Myers and Rhoads, W. A. Crichley of Diamond Alkali, and R. V. Miller of Shell Oil. Du Pont's Roy A. Wentz also spoke

The N e w Tax Law—Its Application and Effect on the Chemical Industry

CHRICHLEY . . . We in the chemical industry are all aware of the benefits to be derived through a rapid recovery of our plant investment for tax purposes. However, today, man­agement finds itself much in the same position as Joseph with his coat of many colors. The operating man does not want his costs unduly burdened—the accountant does not want income distorted from year to year—and the taxman wants as fast a write-off as possible to conserve working capital.

GEMMILL . . .A lot of people are licking their chops and thinking up reserves that they never thought of for book purposes—I think they might as well stop licking their chops.

MILLER . . . I think it can be safely said that this change in the law will encourage taxpayers to invest in new research projects, and will eliminate the discrimination which here­tofore existed. In the long run, it will result in strengthen­ing and improving the entire economy.

WENTZ . . . The pnncipal changes, both in tax theory and in substantive effect, are possibly those dealing with the taxation of compensation received by employees under acci­dent and health plans. It may now be more profitable for a man to stay home sick than to work.

DUDLEY . . . Under the prior law, few subjects were in­volved in more uncertainty than the extent to which the

4828

successor corporation in a tax-free reorganization or liquida­tion was entitled to or was required to step into the "tax shoes" of the predecessor corporation. The 1954 hw for the time introduces certainty into this field.

*-pHE OBJECTIVE of the tax code passed by Congress this -•· year is to create new jobs in industry. Tax decreases will

approximate government spending cuts; industry expansion should provide jobs for people let out of government service. The new law also tends to eliminate confusion over account­ing methods; it reflects a growing tendency to accept good accounting practices as part of the tax structure.

Industrial research was discouraged by the old tax law, which required capitalization of research costs with subse­quent loss deduction for unsuccessful projects. When ex­periments were abandoned as a complete loss it was often a difficult problem to present proof. Another problem was assigning research expenditures to a particular asset. In many instances, new research and development programs could not be started without assurance that expenditures could be deducted concurrently. Because of the great vari­ance among taxpayers with respect to research and develop­ment practices, availability of funds, and incentive to de­velop new methods and products, it seemed necessary that all should have an equal option to deduct or capitalize these costs.

The new rules allow a taxpayer to expense or capitalize such costs unless they relate to the acquisition or improve­ment of land or depreciable or depletable property. All research and experimental expenses except those directly incurred in applying for and obtaining patents may now be charged to expense in the year incurred. The section of the new law on reserves for estimated expenses allows a tax deduction in the current year for items which would not otherwise be deductible until later. If the transaction is a regular recurring one, a going concern will be able to get an extra deduction in the year of changeover—the regular deduction as under the old law plus the reserve for the estimated expense.

Examples of allowable deductions are cash discounts for prompt payments, sales returns and allowances, quantity discounts, vacation pay, liabilities for self-insured injury and damage. This section should not be considered a blank check giving the taxpayer the right to reach into the future under his regular accounting procedure.

Corporate organization expense, formerly capitalized and not allowable for deduction, can now be amortized over a period of not less than 60 months.

Unlike the former law, the new code does not penalize the taxpayer who has a loss under its provisions regarding dividends received deductions. However, the taxpayer with a small profit is treated harshly due to limitation of dividends received deduction to 85% of taxable income computed without the deduction. If just enough is earned to escape the net operating loss position, he will run into the limita­tion of 85% of taxable income. This quirk is probably unin­tentional; probably will be amended in 1955.

The Responsibilities of Management with Respect to Corporate Contributions

HILL . . . Industry contributes about $60 million a year to the support of education. In the light of the great and growing needs of education, this figure should be very much larger.

HAZARD . . . The $500 million which corporate enterprises devoted to philanthropy in 1953 was but 20% of the amount

C H E M I C A L A N D E N G I N E E R I N G N E W S

Page 6: What Are You Doing About

that might have been contributed within the 5% allowable tax deduction. Thus, $2.5 billion could have been con­tributed at a cost to the corporate donors of not more than 48 cents, and in the great majority of cases not more than 18 cents after excess profits tax, on the dollar.

MOEKLE . . . Corporate giving for philanthropic purposes amounts to about 5% of all philanthropy. When it is con­sidered that religion, which is supported almost wholly by individuals, alone accounts for about half of total philan-thropy, the significance of corporate giving in the remaining charitable fields becomes more apparent.

TURNER . . . We need more charity dollars at work in more covftmunities, as well as a more effective use of the donors dollar.

A \ N AN INCREASING SCALE, industry is being called upon ^ to lend financial support to charitable causes. Cor­porate giving now amounts to about 5% of all philanthropy. In 1953, corporations donated $500 million to charity.

A. survey has been conducted by Ford Motor Co. to deter­mine the underlying reasons for corporate giving. The principal reasons were that the contributions would be of direct benefit to the company, would serve the local com­munity, would be of high worth or prestige, or would be of benefit to the employees. Companies reported that they would not give contributions to religious denominations, political parties, veterans organizations, or other factional groups.

They indicated that the amount of their contributions was determined by such factors as the number of employees, the assets invested, the local sales volume, the contributions by others, and the extent of benefit to the company.

Of the 44 companies reporting, 34 said that they gave financial aid to educational institutions. Engineering col­leges and universities are the principal recipients of these corporate gifts. Very few contributions are made to ele­mentary, secondary, or trade schools. Much aid is given for company-related research.

Support of education is now an established policy of many of the more forward-looking U. S. companies. The chemical industry has been in the forefront of this activity. The question is not whether to give support to education but ratlier for what purposes and to whom.

Among the companies especially active in this field is Du

V O L U M E 3 2. NO. 49 · D E C E M B E R 6, 1954

Pont, whose program of aid to education started 36 years ago. Back in 1918, Du Pont granted 17 postgraduate fel­lowships in chemistry totalling $8500. For the academic year beginning this fall, the program was authorized to grant over $700,000.

The broad purpose of D u Pont's present program is to encourage and help education and fundamental research in science and engineering. It is aimed at the improvement of science teaching, the encouragement of fundamental re­search, and the support of postgraduate study.

Postgraduate teaching fellowships are granted to enable graduate students to teach for an extra year. To be eligible for one of these fellowships, the student must have had two years of experience as a teaching assistant and must have exhibited ability and interest in teaching.

Another type of grant involves contributions to liberal arts colleges, to be used by the department of chemistry for advancing chemistry teaching. Until last year, all of the company's contributions to education were for graduate study and research. The new program represents the first direct contribution to undergraduate education. Liberal arts colleges are obviously an extremely important factor in the education of scientists. Today, some of these colleges are actually turning out more chemistry · majors than some of the largest universities.

Du Pont fellowships are also being given to high school science and mathematics teachers. In many high schools, science and mathematics are being taught by teachers whose preparation is wholly inadequate. The fellowships are granted for the training of high school instructors at the master's degree level.

For its 1954-55 educational program, Du Pont allocated $270,000 to university research in fundamental chemistry. The major part of this support is in the form of grants-in-aid to 17 large university centers of chemical research. Other leading chemical companies have adopted other patterns of contributions to education, taking in other areas and imple­mented by other specific programs.

4829

Discussing corporate contributions were Julian W, Hill (left) of Du Pont, W. Homer Turner of U. S. Steel, and John A. Moekle of Ford Motor. Leland Hazard, Pittsburgh Plate Glass, was also included as moderator of the panel discussion

Walter J. Worboys, chair­man of Association of British Chemical Manu­facturers, says that efforts to raise the standard of living in various parts of the world need the ex­perience of our industry. The rewards can be very satisfying, he tells MCA luncheon

Douglas McKay, Secre­tary of Interior, says at MCA banquet that Gov­ernment should confine research planning and operation to those prod­ucts which will benefit all segments of economy