Traditionally, corporations, even very powerful ones, do not last longer than one or two hundred years. For example, the Dutch East India Company which for a while was more powerful than some European governments, was founded in 1602 and became bankrupt in the late 1700’s.
As the BBC pointed out in 2012
The past few years have seen previously unthinkable corporate behemoths – from financial firms such as Lehman Brothers to iconic car manufacturers such as Saab – felled by economic turmoil or by unforgiving customers and tough rivals.
Is there a fundamental reason that corporations cannot last forever, or will we see a future that contains 1000 year old “Microsoft”s and “Oracle”s that will become indelibly entrenched in the world’s economy and work-style, like the God Emperor of Dune?
The Smartest Guys in the Room is a book (and later a movie) which describes the factors that led to the collapse of Enron. The title of the book hints at a syndrome in which people demur to the opinion of the person who is perceived to be “the smartest guy in the room”, regardless of whether the advice being advocated would stand up to objective scrutiny by a company outsider.
This type of introverted thinking is the classical reason why corporations fail, an extreme example of this mindset is the “I think film’s coming back” comment attributed to a Kodak executive during the death throes of the industry icon.
The question seems to be, is it possible to identify structural organisational flaws that lead to this type of myopia or is every large corporation ultimately doomed to become a runaway behemoth hurtling towards the edge of a Dilbert’esque reality cliff?
Laws such as the Sarbanes–Oxley Act ensure there is a realistic feed-back loop between the real financial performance of a company and the stock exchange’s evaluation of the company by providing meaningful data that is available for external appraisal and evaluation. However no law can control the development of an internal attitude that is at odds with realities that do not immediately affect the company’s share price.
Paradoxically it would seem that the more successful a company is, the more it is in danger of having the luxury of defining its own internal reality, which may later prove its undoing in true Decline and Fall of the Roman Empire style.
“This is the way we do it” and “She / he thinks the way we do” may seem like happy sounds as long as external factors align with the internally ripened mindset, but may more begin to resemble the sound of a runaway train when the world changes and leaves the “happy” paradigm behind.
Is it healthy for a company to promulgate its own way of thinking to employees, and is the alternative internal dissonance which would make the running of a large corporation unmanageable?
(This blog is Part 1 in a series on People and Corporate knowledge, TBC…)