I believe that most large companies tend to be more bureaucratic and less efficient than smaller enterprise. The larger organization is usually burdened with employee time-in-place-based increases in wage and responsibility policies. The smaller entity can be more merit-based in personnel management.

There is also a further distance between company customers and senior management, resulting in it taking longer for customer wants and needs to be reflected and satisfied. Smaller competitors can be more responsive to compete with the pricing power of the larger enterprise.

It is likely that in a separation there would be a greater market value in the holding of the separated businesses, than was in the original business.

One of the benefits to both shareholders and stakeholders in the business break up would be a less extreme variance in the compensation of CEOs and other senior executives from that of average staff compensation. In the smaller enterprise it would be easier to instill and manage a team approach, rather than that of traditional subordinate stacking.

The CEO and senior executives of the larger company are likely to resist the lessening of power and likely decrease in compensation, though the increased value of their stock options and shareholdings would be an offset.

So, in sum, the beneficiaries of breaking up larger companies into smaller economic units would be the owners of the businesses, the customers of the businesses, the employees of the businesses, and the public at large. The CEOs and other original company managers would have less power and possibly fewer employment opportunities.

Because of the pressure from large investors seeking higher returns, I believe that it is likely to begin happening.

 

Arthur Lipper, Chairman                 arthurlipper@gmai.com
British Far East Holdings Ltd.