Too Big to Work: MF Global and Bankruptcy

The modern business world of IPOs and M&A has produced mega-entities in the fields of banking, insurance, communications, health care and other critical industries. Too often, drastic and expensive action has been required to save the public from the consequences of poor – and, in some cases, criminal – management of organizational monstrosities that are said to be “too big to fail.” The 2009 government bailout of AIG, GM, Chase and other major American firms is the latest and most dramatic example of this dangerous concept. Perhaps the real problem is that these companies are “too big to work” – too big to be managed.

On Halloween, the markets were spooked when MF Global, the country’s largest commodity broker, filed its bankruptcy papers. There were frantic, last minute, middle-of-the-night attempts to find buyers and even to find customer money! How could this happen? What went wrong? The most efficiently run organizations have always been those run by individual entrepreneurs. These are the people that know their business intimately. They know their product; they know their employees; they know their cash flow. In many cases, they have to reconcile their operations to the market on a daily basis. Obviously, there are certain advantages in economies of scale when related businesses merge. But, when a corporation gobbles up competing firms and becomes an economic blob with armies of employees that require a multi-tiered management structure because it extends itself into diversified global markets, it becomes too big to work and bad things start to happen. Costs go up, quality goes down and competition is crushed. Instead of being bailed out, these giants should be broken up before their cancerous growth destroys our economic body.

MF Global and Jon Corzine represented the worst of all possible combinations: an organization that became too big to manage being managed by a man who was too small for the job. We can only hope that we are not similarly at risk on a national scale with our federal government.