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Many managers have spent the past year wondering if they will survive the next quarter. How many of their companies will still be listed independently 70 years from now?
Not many, if history is a guide. A new study of 1,513 UK quoted companies from 1948 shows only 19 survived a further “three score years and 10” to 2018. Apart from the first decade, when attrition was muted by postwar controls on restructuring and takeover, a listed company typically had only a 50-50 chance of making it through the next 10 years.
That may have been no bad thing. If the alternative to regular renewal is a corporate world populated by decrepit zombies, some creative destruction is welcome, for the sake of the economy, if not for the staff immediately affected. One question, however, is whether the cut-throat market for corporate control, particularly in the most open economies such as the UK and US, is pushing companies too quickly towards the exit. Should governments be pushing back more?
The UK companies that made it into the 21st century are an odd group, from Daniel Thwaites, a brewer that still owns a stable of shire horses, to Tesco. The supermarket chain, smallest of the 19 companies in 1948, second largest 70 years later, is the main exception to a rule that seems to suggest the bigger you are, the more likely you are to endure.
According to Geoff Meeks of Cambridge’s Judge Business School, who wrote the paper with Geoffrey Whittington for the journal Business History, there were really only three outcomes for the class of 1948: “You go bust; you’re acquired and your strategy is changed for you; or you change your strategy at the right moment.”
The survivors (in ascending order of size in 1948*)
Smith & Nephew
Low & Bonar**
De La Rue
The 600 Group***
Marks and Spencer
Tate & Lyle
* 2018 company names; size ranking based on net assets of listed 1948 company
** Low & Bonar was acquired by Freudenberg in 2020
*** The 600 Group and Johnson Matthey were the same size in 1948
Source: G Meeks & G Whittington (2021): “Death on the stock exchange”, Business History
As I suggested here last week, strategic adaptability is the key to survival. Some of the UK groups underwent such radical change that the people who ran the 1948 company would barely recognise its descendant.
Over the past 30 years, Whitbread has shifted from brewer to budget hotelier, via sports clubs, pizza parlours, and coffee-shops. Johnson Matthey, an assayer of precious metals when founded in 1817, is now exploring the market for electric battery materials, faced with the prospect of dwindling sales of its core automotive product, catalytic converters.
What the quantitative Cambridge study does not try to explain, though, is how much management skill, sheer luck, or government policy contribute to corporate longevity.
When I analysed the FT30 a few years ago, I found only two independent survivors from the original constituents of the ageing index. They were Tate & Lyle, still a listed entity, and GKN, which was later bought, controversially, by buyout specialist Melrose. GKN’s extended existence owed much to a combination of strong management and good fortune that meant it could diversify profitably into auto components in the 1960s rather than staying shackled to its core steelmaking business.
The absence of big UK-listed textile companies from the 2018 list of survivors, on the other hand, is partly explained by what Sir Christopher Hogg, who headed one of them, Courtaulds, in the 1980s, once described as “soft and soggy” management in the preceding decades.
Other industrial sectors have simply lost relevance. By 2018, there was no trace on the stock exchange of 1948’s 10 listed leather and fur companies, or 57 brick and pottery-makers.
Do these outcomes make a case for more intervention to prevent or hinder takeovers? The ease with which inventive UK chipmaker Arm Holdings was swallowed by SoftBank in 2016 gives pause for thought. The comparison with Germany, with its traditionally more muscular industrial policy, looks instructive. Its Dax 30 index contains 12 companies that have been members continuously since it was formed in 1988, of which eight, including Allianz, Henkel, and Linde, were founded in the 19th century.
But whether companies there have a better overall survival rate than in the UK (or the US, where the number of stocks halved in the 20 years to 2016, according to another study) is hard to tell after acquired companies are assimilated. My climb through the family tree of the first FT30 members found plenty of venerable names from the original 1935 group still around. But to work out whether they live on in substance, or in brand only, would require, in Meeks and Whittington’s words, “intensive analysis”.
The past year has shown that government must shore up companies through deep and unprecedented crises. Shielding them from the bracing wind of change for ever, though, is a recipe for the sort of managerial sogginess that doomed some titans of the postwar UK economy. Strategic innovation remains a much more reliable guarantee of a long corporate life than government protection.