955
n
Liaisons and intrigues
analysts. Their inuence on a rm’s stock price is known to be
substantial, as one would expect from a nancial analyst. Thus,
they determine the amount of nancial resources available to a
rm. However, their impact actually goes quite a bit further than
that: because of their power to determine a company’s access to
nancial means, they also have a substantial inuence on what
sort of strategy the rm is pursuing in the rst place. A good
setting to illustrate this is corporate diversication.
In the 1960s we saw a wave of “diversication” among corpora-
tions, resulting in the emergence of many so-called conglomerates.
They operated in all sorts of businesses that often didn’t have
much to do with each other. For example, a famous conglom-
erate in the UK was Hanson plc, whose divisions operated in
activities ranging from chemical factories to electrical suppliers,
gold mines, cigarettes, batteries, airport duty-free stores, clothing
shops, and department stores. Diversication was popular and
conglomerates ourished.
In the 1990s though, the trend reversed, and we witnessed a wave
of de-diversication. Firms started to focus on their “core activ-
ities”, companies were split up, conglomerates were dismantled,
and diversication was generally regarded as unfashionable, evil,
and simply not done.
What led the trend to reverse? Economists have argued that
it was shareholders ghting back. Shareholders can diversify
their stock portfolios; they don’t need companies to do that for
them. Managers only do so to serve their own needs, and feed
their desire for empire-building, size, and security. In the 1990s,
shareholders said “basta” and forced self-serving managers to
de-diversify – or so they claim.
A slightly kinder view is offered by sociologists, who argue that
in the 1960s it was considered good practice to spread risk and
diversify and hence a “legitimate thing to do”. Managers weren’t
selsh and evil; they simply did what was expected of them. When
shareholders said, “We don’t want you to do this anymore” (perhaps
because the market became more transparent and efcient), they
diligently responded and applied more focus to their companies.