Too big to fail

Every time some public official talks about a company that is too big to fail, The Past guffaws, knowing that in the relatively short history of business, and the somewhat longer history of nations and empires, size has never precluded failure.

For nearly 400 years, the British East India Company was the largest business enterprise on earth. In its heyday, the company had its own army and navy, operated on four continents and governed the entire Indian subcontinent. In the much smaller Britain of 1800, it employed about the same number of workers as GM did in the U.S., even before the recent layoffs at the U.S. automaker.

Unwilling to confine itself to legal activities, the British East India Company smuggled more opium into China than there is cocaine entering the U.S. today — by a multiple of three. And of course, it was the company’s monopoly that enabled it to undercut American tea merchants in 1773, sparking the Boston Tea Party and helping to ignite the American Revolution.

By 1874, the first multinational giant went bankrupt, and the British East India Company was dissolved.

The failure of large corporations was not just a phenomenon of early capitalist experiments. Forbes published its first list of the 100 largest U.S. corporations in 1917. Over 60 of those 100 companies have ceased to exist. Some 20 more have dropped out of the top 100, while fewer than 18 remain part of the elite Fortune 100. Similarly, only 74 of the original S&P 500 survived for 40 years, and, of the 100 leading companies on the London Stock Exchange in 1984, only 24 still exist just a generation later.

Believers in excellence might contend that businesses that disappeared suffered from poor leadership. In the early ’80s, two management gurus published a study of 43 companies from which we were all to learn, titled In Search of Excellence. A striking number of those once-excellent corporations no longer exist. Names like Amdahl, Amoco, Data General, Digital Equipment Corp. and Wang Labs no longer seem like models every executive should emulate.

What is true for companies is no less true for empires. The Bible tells us of the Persian Empire that stretched from India to Ethiopia. It fell to Alexander the Great, who in turn stretched his holdings from Greece to North Africa and India. Genghis Kahn created the second-largest empire in human history, uniting nearly a quarter of the earth’s land mass — from China to the gates of Vienna. Less than a century after reaching its zenith, the Mongol Empire crumbled.

Only the British Empire encompassed more territory, achieving its greatest reach in 1922, when its king commanded the allegiance of a quarter of the world’s population. Thirty-three years later, it too began to disintegrate, a process that was nearly complete less than 50 years after the British Empire became the largest in world history.

History knows that size is no guarantee of survival, for either corporations or nations.

However, vast scale can lull us into a false complacency. Sitting astride great companies or great nations, it is difficult to envision the potential for failure. Reigning while the sun did not set on the British Empire, neither George VI nor Prime Minister Neville Chamberlain could imagine a Britain in decline. When Walter Chrysler died in 1940, he could hardly have imagined that the company he built into the U.S.’s No. 2 automaker would be bankrupt three generations later.

But, as everyone from Queen Elizabeth to Chrysler’s Bob Nardelli should know, decline, decay and dissolution always lurk just beneath the surface. Leaders — whether in business or politics — who are blind to the possibility of failure are unlikely to forestall it.

Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the majority leaders of both the House and Senate.