Companies come and go. This entire site is predicated on the fact that there is a great deal to learn about companies that fall into mediocrity and fail. The most telling statistic is a Royal Dutch Shell study conducted in 1983. Those results were adapted into a book called The Living Company, which will be high up on my To Read list.
The crux of the study?
The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. This figure is based on most surveys of corporate births and deaths. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces.
That sure does hit home. As a manager and as an employee. It’s amazing to think how companies have this overbearing ability to drive themselves into failure. Few are the companies that can sustain success.
Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations’ true nature is that of a community of humans.
I ramble on often about how companies don’t tackle things the right way. CFOs being put in charge and only focusing on the bottom line. Slashing costs. Enacting policies with counterintuitive results.
A company is a living organism, a community of people that changes every day.
So what did we learn from Royal Dutch Shell? The 30 or so companies that had survived over a century boiled down to this:
Sensitivity to the environment represents a company’s ability to learn and adapt.
Cohesion and identity, it is now clear, are aspects of a company’s innate ability to build a community and a persona for itself.
Tolerance and its corollary, decentralization, are both symptoms of a company’s awareness of ecology: its ability to build constructive relationships with other entities, within and out-side itself.
And I now think of conservative financing as one element in a very critical corporate attribute: the ability to govern its own growth and evolution effectively.
It did not take us long to notice the factors that did not appear on the list. The ability to return investment to shareholders seemed to have nothing to do with longevity. The profitability of a company was a symptom of corporate health, but not a predictor or determinant of corporate health.
Companies become so rigid and inflexible as they grow. Managers enact overarching policies that keep things “in check.” They drive away the best. Over time it’s common, but not normal. It’s almost as if managers should go against what feels like the right answer because often times the commonly accepted knowledge is the stuff that drives companies to the ground.
The right answer is not always the first, obvious, or easy one. It’s also rarely what other people will tell you to do. It’s usually the hard one that most will unintentionally avoid.