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Enterprise & Society 4.4 (2004) 562-582

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Business Failure and the Agenda of Business History

Is it really useful to focus the interest of business historians on major companies that failed in recent years, like Parmalat in Italy or Enron in the United States? What can we learn from studying cases like that of the French company Schneider, a first mover in metallurgy, armaments, and nuclear energy, which for almost 150 years dominated the company town Le Creusot, where the Business History Conference held its fiftieth anniversary meeting in 2004, but which has now disappeared?1

There are reasons to believe that such cases of "failure," though important to the men and women who worked for these firms, and for the communities they affected, do not deserve much of our research attention. The biological analogy, so prevalent in an age in which biology and biotechnologies are enjoying impressive triumphs, would lead us to consider failed cases and defunct firms as trivial. We might think in terms of a product life cycle, as Raymond Vernon put it in 1966, with successive phases categorized as infancy, maturing, and death. We could add that companies, or even networks of companies, are like living beings: they are born, and they will die, sooner or later. As one of my predecessors to the presidency of the Business History Conference phrased it, business historians should not be obsessed by giant sequoias.2 A tree should not hide the forest. [End Page 562]

The economic reasoning, running from Adam Smith to Herbert Simon, would push us in the same direction. For both individuals and firms, thinking and acting on markets means venturing into a world of risk and uncertainty, with asymmetry of information between the players, bounded rationality, and transaction costs. As with all games, no one wins all the time. Firms are not "built to last" (as the Grateful Dead sang in 1988, or as best-selling management specialists recently characterized the "visionary" ones) but are more probably bound to lose.3 There are social costs to a game with few winners and many losers, but paying these costs is preferable to live in the false world of a dictatorship, where all remains the same and nothing is chanced. As the French economist Robert Boyer reminded us at this year's conference, if there is one justification for state regulation left in the twenty-first century, it is to intervene in the case of market failure.4 So, when it comes to business failure, why should business historians not follow the classic injunction of the policeman at an accident scene: "Keep moving, there is nothing to look at"?

There are reasons that we business historians should not listen to this order. To be sure, business administration scholars constantly talk about success stories and teach them to students and to the media. But we business historians claim that we are not like them. We are much broader. Since Herodotus, history has been filled with the stories of wars and crises, life and death. Historians are taught to avoid hagiography, the praising of the powerful and successful.

I do not think we can fail to address the topic of business failure. As a business historian, I agree with the comparison drawn by a professor of business administration, Malcolm S. Salter: "Political scientists have the Bay of Pigs; engineers have the Challenger disaster. And now managers have Enron."5 The most recently publicized cases—Enron, Parmalat, and the like—invite our reflection. The sheer magnitude of these economic disasters has not been seen since the Great Depression. All the external controls of business activity [End Page 563] (which feed accountants, auditors, and financial analysts) were circumvented or rendered inoperative in these cases. More than sixty years of carefully crafted legislation proved to be ineffective. A pervasive theme of economic thought of the last decade—governance—was called into question. But governance is not simply a gimmick or a gadget, not simply an intellectual fashion or an ideological tool. It is a topic high on the agenda of business historians...