- Standard of Business
- Producing Real Value
- The Harming of Others
- Directed Passion and Hard Work
- The Handshake
- Misdirection and Deception
- Partnerships of Trust
- Amorality of Money
- Money: A Means, Not an End
- The Great Liege Lord: Greed
- Human Relationships, Not Numbers
- Losing with Honor
- The Trap of Zero-Sum Thinking
- Align or Die!
- Creating Shared Stakeholder Value
- Capitalism: The Powers of Good and Evil
- Guarding Growth
There was a time when stocks were bought and sold for the stream of future dividends they would produce. We were buying into the company because we believed it would produce long-term results. Consequently, we carried a long-term attitude into our buying and selling patterns.
While we may give this approach lip service today, most of the wealth in the stock markets is created by the changing prices. Buy and sell at the right time and you can get rich. We’ve been refining this art so that now we have high-frequency trading, where computer-controlled buying and selling happens on the milli- or even microsecond level.
This change in mindset has also had a profound effect on market-listed organizations. For them, the long-term outlook has been mostly replaced with quarterly earnings reports (or, in some cases, sub-quarter reporting). And, there’s one single, overriding expectation:
There will be unending growth!
SUBTEXT: Or there will be hell to pay.
To be honest, I’ve never really understood this. It’s not possible to have never-ending growth. The Rule of 72 sees to that. Eventually, compounding growth reaches a natural limit. Yet, for some reason, we expect firms to continually grow, and grow, and grow.
If they don’t, we punish them (or, at least we punish their leaders).
Now, you may object and say there are many examples of long-term sustained growth. And, I would certainly agree with you. Here is a chart showing the top twenty companies in the world in terms of revenue. It has some interesting characteristics.
|Wal-Mart Stores, Inc.||Retail||$486||2,200,000||1962|
|Sinopec Group||Oil and Gas||$471||401,000||2000|
|China National Petroleum Corporation||Oil and Gas||$432||1,668,072||1988|
|Royal Dutch Shell||Oil and Gas||$421||90,000||1907|
|ExxonMobil||Oil and Gas||$394||76,900||1999 (1870)|
|Saudi Aramco||Oil and Gas||$378||60,000||1998 (1933)|
|BP||Oil and Gas||$359||83,900||2001 (1908)|
|State Grid Corporation of China||Electric Utility||$333||1,564,000||2002|
|Total S.A.||Oil and Gas||$236||98,799||1924|
|Chevron||Oil and Gas||$212||61,000||1984 (1879)|
|Berkshire Hathaway||Conglomerate||$195||24||1955 (1839)|
|China Railway Corporation||Transport||$172||2,045,800||2013|
|Phillips 66||Oil and Gas||$161||13,500||1917|
|Gazprom||Oil and Gas||$160||432,000||1989|
NOTE: Original founding date is in parenthesis where applicable.
^^^ hover to reveal ^^^
There are a couple of things you will notice right away:
- The overwhelming number of ‘Oil and Gas’ companies
- The number of state-sponsored entities
- The age of most of the companies shown
- The older the company, the smaller it is
I find this last point to be somewhat interesting. Now, some of these older companies are still quite large—on the near side of 100,000 employees. Also, Berkshire Hathaway is clearly an outlier with only 24 employees.
However, what I want to put forth is the idea that each company has an optimal size for meeting its key objectives. The older the company, the more likely it is that this magical size is known, though there are plenty of examples of new management coming in and drastically altering the nature of companies.
Putting those things aside, what a good business leader must always consider is whether or not the company is at the appropriate size to meet the companies goals and purpose. Growth for growths sake is not always good, and can actually be detrimental to the company.
With growth in headcount, new systems, infrastructure and bureaucracy must be put into place to handle the larger organization. This is not necessarily a bad thing; it may be exactly what is needed for the organization. But, then again, it might not be.
When faced with the decision to grow or not, always begin with an honest conversation about why you want to grow. From there, honestly consider the pros and cons with every aspect of the company (not just the bottom line). Then, armed with knowledge, make a conscious decision with your eyes wide open.
Regardless of the pressures to do otherwise, grow to its optimal size… and then stop. We’re playing the long-term game here.
This article is released under CC-SA-2.0