“Shockingly, Boards of Directors Encourage this”: Gallup CEO…”Why this economy is so rotten to the core. “

Thursday, August 4, 2016
By Paul Martin

by Wolf Richter
WolfStreet.com
August 4, 2016

“Shockingly, Boards of Directors Encourage this”: Gallup CEO
by Wolf Richter • August 4, 2016
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Why this economy is so rotten to the core.

Jim Clifton, Chairman and CEO at Gallup, which incessantly surveys what consumers and companies are up to every moment of the day, nailed it when he lashed out at his fellow CEOs, for their way of doing business.

Their companies are “failing to grow organically,” he said in a blog post. Instead of investing in growth-producing activities, CEOs go out and buy other companies, particularly their competitors.

Buying competitors – effectively getting rid of competition – takes pressure off these companies to innovate and perform, and they’re all hoping to gain some pricing power with these strategies. This has worked miracles in healthcare, where prices have shot up as consolidation has become a pandemic strategy, no matter how large and unwieldy the company, or how concentrated and monopolistic the sector.

“Shockingly, boards of directors encourage this,” Clifton wrote, adding:

Acquisitions is the current growth strategy of Forbes Global 2000 companies. As a result, the number of publicly listed companies traded on U.S. exchanges has been cut in half in the past 20 years – from about 7,300 to 3,700.

According to the World Bank, the number of listed companies on all global exchanges – currently 44,000 – has flatlined since 2006, with a recent two-year decline.

The herd is getting pretty small. At some point, this acquisition strategy hits a wall. It makes you wonder how long we’ll need the New York Stock Exchange and Nasdaq.

In a perfect, growing world, the market would have doubled the number of big public companies instead of halving it.

So there’d be about 15,000 US-listed companies by now, not 3,700. They’d be smaller and nimbler. There’d be more competition too, more innovation, more emphasis on investment in productive activities and people to achieve organic growth.

The Rest…HERE

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