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April 29, 2013 / mike54martin

Are They Too Big To Know Better?

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Being big can sometimes be an advantage in the marketplace. It gives a company the ability to dominate its sector and create fabulous products and even greater wealth for its shareholders. But sometimes big is not necessarily better. And in some cases it can create the opportunity for companies to become “too big to know better.” When that happens disaster may not be far behind. In my view the latest example of this is General Motors, once the largest corporation in the world. GM went into bankruptcy protection both here and in the United States in 2009. The Obama administration deemed it to be too big to fail and offered the corporation billions in bailout money.

The Canadian and Ontario governments followed suit and provided $13.7 billion in taxpayer’s aid and received back GM stock, which was worthless at the time, in return. To pay back their Canadian donors GM recently announced that it was moving the production of its Camaro ‘muscle’ car to Michigan from Oshawa. Not only did GM bite the hand that fed it when it was dying, it took 1,000 auto worker jobs and as many as 8,000 spin off jobs with them. That sound you heard was the door slamming in your face. But I have a funny feeling that somewhere along the way GM might regret this decision. Then again, what do I know? I’m just one of the little people.

Other “too big” examples abound but one of my favourites involves Nortel. You might remember them. My mutual fund certainly does, and not fondly. At one point Nortel Networks was as big as you can get in Canada. Their stock made up about 40% of the equity on the Toronto Stock Exchange and they didn’t just have office complexes in Ottawa and around the world, they had campuses. They grew so big that they decided that they were “too big” for the community United Way and they would set up their own endowment system based on what was good for Nortel. After all if it was good for Nortel it must be good for the community, right?

Well we all know how the Nortel story played out. The company is gone, former executives are disgraced and the campuses are still waiting for new students. I hope that GM doesn’t suffer the same fate from its “big” thinking. But I have another funny feeling coming on.

This post first appeared on my blog at http://www.jobs.ca

Mike Martin is a freelance writer and the author of “Change the Things You Can: Dealing with Difficult People.” He is also the author of the Sgt. Windflower Mystery series. “The Body on the T” will be released on May 1, 2013.

http://www.bodyonthet.com

 

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