Steve Parks

The Mr Creosote Approach to Growing a Business

As we round off the year I think it's good to take stock for a moment, and try to learn from all that has happened.

One big issue I think we should consider is the obsession we have with creating the biggest companies possible. This is a particular pressure on listed companies, PLCs, who are expected to turn in higher and higher turnover and profits every quarter.

The expectations of the city-boy institutional investors simply can't be met through organic growth of established companies - so in recent times our largest and most solid institions have been pushed into a constant stream of mergers and acquistions - creating the illusion of growth by simply bolting on turnover from other companies.

This has led to a whole list of problems - just look at the HSBC acquisitions in the US, the RBS acquistion of ABN Amro, and so on.

Different companies have different cultures, different IT systems, different processes, different target customers and much more - and yet they have to somehow integrate. Added to this is the City's expectation of cost savings after the acquistion - so a round of damaging redundancies and cutbacks follows.

The result is a short term boost to the figures - but a string of long term problems are stored up. A number of studies have shown that little long term value is delivered to shareholders by these transactions (and actually you often find that 5 years later there is pressure on a new CEO to split up the company again!).

But now we have seen that the problem is worse than this. It doesn't just affect the company and it's shareholders. If the companies get big enough it affects the population as a whole. No CEO can keep control on a company so big, no regulator can effectively monitor it, no political party dare challenge them. We saw it in the collapse of Enron, and now in the global econimic crisis we've seen one PLC after another uncover some uncomfortable truths.

So what do we do about this? It clearly doesn't work for companies to get so big, but we can't restrict growth can we? Should there be some kind of limit on M&A activity - but that removes lucrative exit routes for savvy entrepreneurs? Should there be taxes on M&A - funding better oversight and regulation?

One commentator floated the idea that when a company reaches a certain size the management team should all get medals and some kind of recognition, but then the company gets split up into smaller companies.

This is a very interesting idea - as it backs up lots of expert research that found teams are hard to manage beyond 50 people, and companies should divide teams up if they get bigger than this - so why not do it for companies as a whole? It also reflects the way nature manages growth.

But at the moment we have a Mr Creosote (see Monty Python) approach to growing big public companies. They sit at the table and their waiter (professional adviser) just keeps bringing them more and more to eat. Finally they are so full they are struggling to keep it all down - but the waiter insists they finish off with just a 'wafer thin mint' - and they explode, leaving a mess for us all to clean up.

As we all make our own New Year's resoultions to eat more healthily, let's demand the same from our PLCs.

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