The Business Times

People set to live longer than big companies

Published Tue, Feb 28, 2017 · 09:50 PM
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THE trials and tribulations of Blackberry, Yahoo or Twitter remind us that companies can and do disappear. The large companies of today are not the same as those of yesterday. The process of creative destruction highlighted by Schumpeter is still in action. Indeed, it is accelerating.

A recent study by McKinsey found that the average lifespan of companies listed in Standard & Poor's 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that in 2027, 75 per cent of the companies currently quoted on the S&P 500 will have disappeared. They will have been bought out, merged, or will go bankrupt like Enron and Lehman Brothers. Some companies manage to escape this mass destruction. General Electric, Exxon Mobil, Procter & Gamble, and DuPont are among the oldest companies on the New York Stock Exchange. Nevertheless, the largest market capitalisations today have new names: Apple, Alphabet, Microsoft or Amazon.

Why do large companies disappear? The English economist EF Schumacher asked this question in 1973 when he published his influential book Small is Beautiful. He exposed the inefficiency of large enterprises and anticipated the current trend towards sustainable development. He maintained: "What characterises modern industry is its enormous consumption to produce so little . . . It is inefficient to a degree that goes beyond imagination!"

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