This question was asked in a recent Wall Street Journal management blog. The author said that economists generally answer that institutions die when they deserve to die - that is, when they have shown themselves incapable of fulfilling stakeholder demands. But then the blog went on to say that this assessment misses an important point: that just as a person's death can be untimely, so too can corporate death, at least from the perspective of society at large. The author posits that organizations grow and prosper by turning simple ideas into complex systems and that complexity takes time - a reason to encourage organizations to adjust their strategies to pursue a long-term mission.
This blog reminded me of the book that got me started on my study of old companies, Arie de Geus' The Living Company: Habits for Survival in a Turbulent Business Environment. In the prologue to his book, de Geus states that if you look at corporations in light of their potential longevity, most are dramatic failures - or, at least underachievers. The large, multi-national companies, he says, live an average of 40-50 years. Other studies on life expectancy of firms regardless of size indicate an average of 12.5 years. Knowing that companies can survive for well over 100 years, the implication is that a gap exists that represents wasted potential. De Geus maintains that no living species endures such a large gap between potential life expectancy and average realization. Moreover, few other types of institutions (such as churches or universities) seem to have the abysmal demographics of the corporate life form.
Why should we be concerned about premature corporate death? As de Geus comments: "The damage is not merely a matter of shifts in the Fortune 500 roster: work lives, communities and economies are all affected, even devastated, by premature corporate deaths." He, too, speculates that the reason for premature corporate death is because management focus is too narrow and short-term, forgetting that the organization's true nature is that of a community of humans in pursuit of a long-term mission.