The Living Company

By Arie de Geus

The dark days of winter cause me to focus on my inside environment. I clean, I sort and I hopefully divest myself of unused goods. My aim is to create an office workspace that is uncluttered and distraction-free.

My professional library is my biggest challenge. Where do all these books come from? Are they like the coat hangers in my closet, reproducing as I sleep? Sadly no, my accounts at online and bricks and mortar book purveyors will testify to my love of procuring new bookshelf fodder. Once the shelves fill and the stacks start to form on the floor, I know it is time to purge.

Every time I cull my collection, I find a hidden gem. I acquired The Living Company when it was first released in the late 1990’s. At that time, I was powerfully struck by Arie de Geus’ message. Would a re-read in 2014 be equally rewarding? I often find that business books don’t age well; their messages are so tied to their times that they sound simplistic or even anachronistic at a later date.

I found reading The Living Company today just as relevant as it was nearly 17 years ago. Not only does the book contain thoughtful messages for business leaders today, much of much of what de Geus had to tell us those years back seems almost prescient wisdom in light of the business debacles of the last decade.

De Gues sets the stage for the book’s purpose by observing:

…most commercial companies are dramatic failures – or, at least, underachievers. They exist at a primitive stage of evolution; they develop and exploit only a fraction of their potential. Consider their high mortality rate. The average life expectancy of a multi-national corporation – Fortune 500 or its equivalent – is between 40 and 50 years.

De Gues then proceeds to explore the reasons why large corporations fail to survive a scant half-century as opposed to small, privately held companies that may have centuries-long histories. De Gues, who worked in strategy and planning for Royal Dutch Shell, pulled together a research team made up of some of his planners and outside b-school faculty. They took a hard look at companies comparable in size, scope and longevity to determine evidence of practices that promoted and supported business sustainability.

The first observation from the team was that prosperous and long-lived companies have a fundamentally different organizational mindset. De Gues calls them “living companies” because their central purpose is to promote an internal sense of community and identity. They recognize and value their people and continuously stay focused on the business environment in which they operate. The opposite of the “living company” is the “economic company” defined as one driven by financial numbers and the desire to provide wealth for owners and shareholders.

The living company is centered on four critical factors:

  1. Sensitivity to their environment in order to learn and adapt
  2. Cohesive community with a strong sense of identity
  3. Tolerant of unconventional thinking and experimentation
  4. Conservative in financial policy to retain the resources that allow for flexibility

When read in 1997, de Gues’ premises were new and surprising. Reading The Living Company nearly a decade and a half later, I was struck by how much his key messages have become part of our business vernacular. The principle of the living company’s need to learn would later become the cornerstone of Peter Senge’s work on the learning organization in The Fifth Discipline. (Note: Senge wrote the Foreword to The Living Company, citing de Gues’ writing as seminal to his own thinking.)

Nothing attests to the veracity of thought than the sands of time. De Gues’ description of the “economic company” and its relentless pursuit of profits and shareholder returns, its focus on short-term gains as opposed to long-term sustainability have certainly been mirrored in some of the biggest business debacles of the last decade. One only needs to look at Enron (formed in 1985, dissolved in 2008) Lehman Brothers, ( partnership formed in 1969, bankrupt in 2008) and Arthur Anderson (founded in 1885 and dissolved by 2002) to see the devastating effects of focusing only on the financial side of the business.

I am happy to have become reacquainted with a classic from my bookshelf. The Living Company is one book that won’t go into the toss pile. Now I just need to find 10 or 20 that will or no new books for me in 2014!

Click here to learn more about The Living Company