Tweet

I feel sorry for Mary Cunningham. In September 1980, she had to suffer through the controversy surrounding her rapid rise to power at Bendix Corp. Two years later, she was back in the headlines, this time in the role of confidante to William Agee, the company's chairman, as Bendix fought to acquire Martin Marietta Corp. with one hand while resisting an Allied Corp. takeover bid with the other.

I feel sorry for her because all the attention seems so unnecessary. While Allied swallows Bendix, just as E.I. Du Pont de Nemours & Co. swallowed Conoco Inc. and next week Big Company X will swallow Big Company Y, there is another story developing that deserves equal time. If the past is really prologue, the trend behind that story bears watching.

The trend is called deconglomeration. It is an awkward word that describes the process in which once-acquired companies buy themselves back from publicly owned corporate giants. More and more once-and-future entrepreneurs, like this month's cover subject, Walter Lovejoy, of A-1 Tools, are gratefully and aggressively returning to the pleasures and freedoms of private ownership.

Conglomerates were a child of the 1960s and early '70s, when many major corporations went on a buying spree of unprecedented proportions to diversify their revenue bases. If you owned steel mills and fast-food stores, the logic went, profits from steel might fall but profits from hamburgers could rise. The reward: a higher valuation for the company's stock in a public market increasingly dominated by institutional investors who wanted to see consistent earnings gains.

Sometimes acquisitions really did make the resulting entity stronger. More often, though, executives of the acquiring company found managing their new businesses either annoying or baffling. And many of the former owners, still captains of their ships but now with an admiral or two on the bridge, found that their new association cramped their style.

After a decade of conglomerate life, many of the acquired companies, and their acquirers, have decided that each is better off alone. In a sense it is a sign of "back to basics" thinking by many large companies: They will concentrate on doing a few things well rather than trying to be everywhere at once. For the newly freed owners of the former divisions, it is a chance to pursue new technologies or traditional businesses with an eye toward innovation, quality, and service to the customer that earnings-per-share pressures don't always permit.

This seems to be part of a larger trend. We are awakening to the fact that the best way to compete in the global economy is to concentrate on doing the best thing for the long haul, producing the best products by incorporating the best processes. That doesn't always lead to the best short-term earnings reports. But as many conglomerates have found, such gains can be illusory.