Content area
Full Text
The diversified corporation became the dominant form of industrial firm in the United States over the course of the twentieth century. During the 1920s, DuPont and General Motors pioneered the use of the multidivisional form (or M-form) to produce and market a number of related products through separate divisions, and this organizational structure subsequently spread (Chandler 1962). The M-form also allowed easy integration of acquired businesses, which enabled firms to grow through acquisition. Following the enactment of the Celler-Kefauver Act in 1950, horizontal and vertical acquisitions (buying competitors, buyers, or suppliers) fell out of regulatory favor, and firms seeking to grow through acquisition were forced to diversify into other industries. This fueled the conglomerate mergers of the late 1960s and 1970s (Fligstein 1991). The strategy of growth through acquiring firms in unrelated lines of business and structuring them as a collection of separate business units reflected an underlying model of appropriate corporate practice-the "firm-as-portfolio" model. By 1980, the triumph of the firm-as-portfolio model seemed complete, as growth through diversification was perhaps the most widely used corporate strategy among large firms (Porter 1987), and fewer than 25 percent of the Fortune 500 largest industrial corporations made all their sales within a single broadly-defined (2-digit SIC) industry.(1)
During the 1980s, however, a wave of "deconglomeration" restructured American industry and heralded a return to corporate specialization (Bhagat, Shleifer, and Vishny 1990). From an economic perspective, the value of bringing a number of weakly related business operations under a single management had long been suspect, as financial orthodoxy insisted that investors should diversify, not firms (Amihud and Lev 1981). Moreover, the construction of a takeover market for large firms in the 1980s, supported by Reagan-era regulatory policy, empowered a mechanism to support this orthodoxy. So-called "bust up" takeovers, where raiders bought conglomerates and financed the deal through the post-acquisition sale of their separated parts, became accepted and then commonplace (Lipton and Steinberger 1988), while diversified firms not threatened by takeover voluntarily shed unrelated operations to focus on "core businesses." As prevalent corporate practices changed, revisionist views of conglomerate mergers suggested that it was "almost certainly the biggest collective error ever made by American business:' a "colossal mistake" that had left American industry uncompetitive relative to international rivals (Economist 1991:44)....