New Path Ahead for CEFIC

Peter Elverding took over as president of the European Chemical Industry Council (CEFIC) at its annual meeting last October. Since then, Elverding, who is also chairman of DSM, has been shepherding CEFIC into a restructuring plan. His aim is to gain what he sees as crucial for the continued success of the pan-European organization: efficiency and efficacy.

Task forces within CEFIC have begun pulling together new plans for the organization, to be presented at the next annual meeting in October in Nice, France. Whatever the final plans are, according to Elverding, they will reflect the changes occurring throughout the worldwide chemical industry.

"In the chemical industry, there is always a lot of restructuring," he points out in a conversation with C&EN at his DSM offices in Heerlen, the Netherlands. The restructuring is particularly dramatic in Europe, he adds, "because of the strong competition not only within Europe but from the U.S. and now from Asia. Most companies are in the process of restructuring--either changing portfolios, as DSM has done, or changing cost structures."

And just as companies have been forced by competition to restructure, so have the associations that represent the companies within Europe. The wider challenge, Elverding insists, "is to be as effective and as efficient as possible."

He ticks off other changes: fewer companies with broad portfolios and more that are narrowly focused, an increasing number of financial institutions directly involved in the industry, and changes in Europe's political environment reflecting the expanded European Union.

"There are more and more changes in the way politics is being done--it is more public, with more emotion and more nongovernmental organizations in any discussion," Elverding observes. The political process is thereby becoming more open, he notes--not necessarily a bad thing, but with 25 countries to deal with, more complex.

"All those changes in the outside world make it necessary to look at how to make CEFIC more effective and more efficient," he says. And by that, he means "the system"--not just CEFIC as a relatively small organization in Brussels, "but the national federations, the sector groups, and affiliated associations" that make up the whole of the representation of the chemical industry in Europe.

As Elverding sees it, "The way CEFIC is operating can be done better." The association will be what he calls "the policy center for Europe." But how that is organized, he says, is open to question. For example, do all the experts need to be in CEFIC, or could there be centers of expertise in the different countries? Experts within the association of a particular country could represent that country, but also Europe as a whole--"joining forces in a better way than we have in the past," Elverding concedes.

"We don't have all the answers yet, but by October, we should," he promises.

HOWEVER CEFIC changes, its impact will be felt across an important segment of European industry. CEFIC represents, directly or indirectly, some 29,000 large, medium, and small chemical companies, which employ about 1.7 million people and account for nearly a third of world chemical production. For 2003, the most recent year for which full analysis is available, aggregate sales of CEFIC members were roughly $744 billion, compared with total chemical sales in the U.S. for that year of $406 billion and $178 billion in Japan.

Under CEFIC's current structure, three basic blocs send delegates to the general assembly: member federations such as the U.K.'s Chemical Industries Association and Italy's Federchimica; corporate members, multinationals such as BASF, Dow Chemical, and Rohm and Haas; and business members, smaller companies such as Contract Chemicals in the U.K. and Perstorp in Sweden.

The general assembly in turn sends some delegates to the CEFIC board. The executive committee of the board works with the director general, currently Alain Perroy. The director general has a leadership team representing four sectors and four disciplines: plastics, chlorine, petrochemistry, and specialty chemicals; and product stewardship, international trade and competitiveness, research and science, and trust-building.

CEFIC's representatives are increasingly being drawn from a wider geographic area. To some extent, that's old hat for the association. After all, when it was originally formed, in 1972, CEFIC was a federation of country associations both within and outside the European Union. Even before the latest EU enlargement, the organization had taken as members the chemical industry federations of former Eastern bloc countries.

So, Elverding says, an increased geographic spread won't have much of an influence. "We are used to working on a global level--for example, our links with Japan and with the American Chemistry Council in the U.S., and our work to involve China and others in the International Council of Chemical Associations (ICCA). And in Europe, so many foreign companies--U.S. companies, for example--are represented in CEFIC. We are used to working in a global environment."

On the other hand, what is raising large question marks is the growing role of financial institutions, including private equity investors, in the chemical industry. "There will be an effect, but to what extent is unclear," Elverding notes. For the immediate future, he says, those shareholders are represented by company managers who still see a value in being members of CEFIC.

Moreover, many private equity companies that have bought into the chemical industry are selling again. But an increasingly strategic approach to such investing is appearing, Elverding says, with investors not only buying and selling, but combining businesses into new companies that could be developed into major industrial presences.

The crucial issue for CEFIC, he says, is long-term commitment. "This industry is not just for a couple of years, but for life. We want to be involved in issues--for example, political issues--not just on a day-to-day basis but for the long term. Will there be the same commitment from private equity investors? The whole concept is still out."

The issue is important, he observes, because "chemical societies worldwide are all aware that this is a global industry, and that it is an industry not loved by all people--there is uncertainty about it."

"Most of our products aren't tangible consumer products, so it is difficult to explain our industry. And all the vessels, pipes, and so on make people nervous. We have to do more to explain who we are, what we do, and why we do what we do."

Increasingly, he says, such efforts are being coordinated on a global basis by ICCA. "Over the last few years, the opportunities and effectiveness of ICCA have clearly increased, for several reasons," he says.

For example, ICCA has become accepted as the global representative of the chemical industry at international forums such as the United Nations Environmental Program, the World Trade Organization, and the Organization for Economic Cooperation & Development (OECD). "These groups develop ideas on how to manage chemicals in a global environment," Elverding points out, particularly in building the capability to manage chemicals safely in less developed parts of the world.

ICCA also works on global standards for the chemical industry. For example, under the aegis of ICCA, the industry has developed a new, updated global charter for Responsible Care that will be formally rolled out in the U.S. in June at the American Chemistry Council's annual meeting and in Europe in October in Nice (C&EN, May 9, page 9). The new charter is based on the work of Europe, Japan, and the U.S., comparing experiences to come up with proposals on how to improve the system.

IN ADDITION, many of the issues affecting the chemical industry are global, he notes. Cases in point: product responsibility, the health effects of products, biomonitoring, and the management of chemicals, such as the Registration, Evaluation & Authorization of Chemicals, or REACH, program proposed by the European Commission.

The industry has changed its focus, Elverding notes. "In the past, we focused on our manufacturing processes. But now, processes are managed effectively, so there is less concern about them. Now the concern is about the effect of chemicals in society," he says. "For example, if you use a chemical, what can be the effect? It is more difficult to address this--there are more factors than in manufacturing, but now we are preparing an approach for how to deal with these issues."

The industry also coordinates its long-term research activities in an ICCA context, he says, to ensure that its resources are used as efficiently as possible. And ICCA has steered the high-production-volume chemicals initiative, in a voluntary partnership with OECD, to provide harmonized data on hazards for approximately 1,000 high-production-volume substances.

"These chemicals will be evaluated by the chemical industry and checked by OECD," Elverding says, noting that the evaluation will be akin to the proposed REACH regimen. "We have reached the target of 1,000 chemicals being handled," he reports, "and we are cooperating to get the best result for the chemical industry as a whole," using the ICCA context to prevent duplication of effort.

"Jobs and economic benefits in the chemical industry are dependent on global workability--underpinning the competitiveness of that industry worldwide and the conditions under which it must work," he argues. "From a self-interest point of view, it is important for the regulators and politicians to see this industry in a global context. We must constantly and permanently convey the message that this is not a local or regional industry, but a global one."

That is why, he adds, the European industry still needs to improve the workability and management of the proposed REACH program.

Among CEFIC's arguments is that REACH should be managed by "one responsible agency to make all the relevant decisions. It is in the interest of the industry to have the same rules applied in every country," Elverding says. "That is why we have welcomed REACH as legislation. We want to have that--it will be a better process of chemicals management than the fragmented regulations now. We only want to have it workable. We in the industry can only be effective and efficient if REACH is workable."

CEFIC is "a going concern--a running train that will be handed over" by Elverding at the end of his two-year term in October 2006 to his successor, most probably Degussa Chairman Utz-Hellmuth Felcht. By the end of those two years, Elverding hopes to have accomplished several things: ensuring that CEFIC is doing whatever it can to improve REACH and creating a situation in which the industry can focus on building trust, reaching out to society as a whole.

REACH won't go into practice within his term, Elverding predicts, "but the final conditions will be worked out." And as for trust, he says, "this is extremely important. We must be less reactive--more proactive, involved in an early stage about the concerns of society, and prepared to work and discuss the concerns."

He acknowledges that the chemical industry is "probably the same as any other industry with a lot of technology and scientific approach--'We know the answers.' But real life, of course, is very complicated--we don't know all the answers." And some answers are needed not because they address scientific issues, but because they address emotions, perceptions, and concerns.

CEFIC has a working party, chaired by Luciano Respini, president of Dow Europe, Mid-East, and Africa, to develop ways to work with the public on concerns and building trust. "We do want to make a step in that direction," Elverding says.

HE STRESSES the continuity that exists between him, his predecessor, Eggert Voscherau, deputy chairman of BASF, and Felcht, his likely successor--somewhat of a departure from CEFIC's early days when a presidential term was taken in isolation, often changing dramatically from president to president.

For example, the idea of a restructuring began in Voscherau's term and really got under way by mid-2004. Between now and October, Elverding says, "I hope we will be able to present the options for a smooth transition. In October, we will present a recommended plan to be voted upon."

But of course, voting approval for a restructuring plan would be only the first step. "It must then be implemented," he points out. "We can decide for CEFIC but not for the other groups--for example, the federations and the sector groups. We hope to get the 'buy-in' from everyone."

As with any quasi-political structure, change has to be a team effort, and gaining acceptance is always difficult when roles will change: Some will diminish, others will be more heavily emphasized. "So many people are involved," Elverding notes. "It takes more time, and you need patience for the good processes to come to the best results. That is our work."