If we look at the stock market, the answer is yes. Its incredibly difficult to stay in the Dow Jones 30 or the S & P 500 for multiple decades; in fact, most participant companies have not been able to do it.
Three quarters of the companies that made up the S&P 500 in 1980 are either no longer part of it or have been placed in new industry categories (R.N. Foster, Live long and prosper. McKinsey Quarterly 1999). Foster further described the growth difficulty of the companies in the S&P 500 this way:
Of the 500 companies making up the S&P 500 index when it was introduced in 1957, only 74 remained there through 1997. Of these 74, only 12 outperformed the index from 1957 to 1998. If the S&P 500 now consisted solely of the companies on the list in 1957, the overall performance of the index would have been 20 percent a year lower than it actually was.
Foster and Kaplan (Creative destruction. McKinsey Quarterly 2001) say it is more difficult to stay in a market index today than a century ago. The 90 major US companies that comprised the Standard & Poor’s Index in the 1920s stayed there for an average of 65 years. They say by 1998 the average anticipated tenure of the company in the S&P 500 became only 10 years.
The magazine now entitled Forbes published the first list ever of the 100 largest corporations in America in the year 1917. 70 years later in 1987 Malcolm Forbes traced 39 of those remaining companies through to the then-present day. The investment return of the portfolio of those 39 companies was 20% lower than the corresponding market indexes. Long-term corporate survivors under-perform the overall market. Writing in 2003, Foster calculated that the long-term appreciation of the capital markets as a whole in the United States had yielded a total return of about 12%, about 3% lower than the total bond return. He also noted that in the 1973-1974 period 80% of the equity wealth in United States at that time was wiped out. He did not comment on the aftermath of the 2000 tech bubble that brought the NASDAQ, peak to trough, from about 5000 to about 1000 – - another 80% decline.
From 1997 to 2002 the Dow Jones Average grew at a collective annual rate of only 4.9% in revenue, 4.0% in gross profit, and .05% in after-tax profit. If the five strongest performers of Home Depot, Merck, Microsoft, Wal-Mart, and CitiGroup are excluded, the numbers drop to 2.3% and 1.6% respectively – - about the rate of inflation – - and after-tax profit goes negative (Treacy, Double-digit growth: How great companies achieve it – - no matter what, 2003). Growth is the key to the death or life of a corporation; what does not grow atrophies, withers and eventually expires.
And these days growth is dependant on innovation more than ever before.
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