Envied as the titans of business in the 1960s and 1970s, conglomerates -- companies that own other companies or divisions, sometimes in unrelated industries -- fell out of favor over the last 20 years. Too big to manage effectively. Too exposed. Not focused enough.
Peter Lynch, the investment guru, summed up these companies as "diworsification." The markets were equally unkind, valuing conglomerates lower than the value of the individual companies they held, the so-called diversification discount.
So through much of this century we have seen a parade of these wobbly corporate giants -- Cendant, Time Warner, Tyco -- unpacking previous acquisitions and reorganizing around core competencies. TW said bye-bye to AOL. Cendant bid a fond adieu to Century 21 Real Estate and a couple dozen other companies.
Then a funny thing happened on the way through the financial crisis. In general, conglomerates such as GE, Honeywell, United Technologies, 3M and Emerson Electric fared relatively well. Their secret? Financial flexibility in a period of extreme credit scarcity.
According to recent research by professor BelÃ©n Villalonga of Harvard Business School and doctoral candidate Venkat Kuppuswamy, conglomerates out maneuvered their focused competitors in two ways. First, financing institutions considered diversified giants a safer credit bet, so even as the investment pipe from the outside was closing down, it never closed all the way for the Big Boys. Second, conglomerates took advantage of their diverse holdings to move financial resources around to support growth opportunities.
"Our study provides evidence that corporate diversification can play an important insurance role for investors, by providing them with protection against bad states of the world," the researchers concluded. So far, this increased value of diversified companies has persisted even as the worst of the crisis has receded.
If conglomerates are truly on a rebound, it's not just investors who should take note. Working for one of these giant entities can create amazing career experiences and advancement opportunities for managers who can find the right fit. I had the pleasure of working for one such media company, which afforded me great experiences at an established business publication, a management role in a start-up online news service, and ultimately as a content producer for a television show about consumer electronics -- a variety of experiences difficult to find elsewhere.
So the next time you go job hunting, evaluate not only potential employers, but the company that owns the company.