My colleague Tom Osegowitsch suggested I write about this topic. I countered with an offer to host him as a Guest Blogger. So here is Tom:
Have you heard of Anadarko?
Chances are you haven’t. Yet Anadarko is a company currently involved in the largest oil spill in US history. The reason why you haven’t heard of them is because they do not have the iconic status and size of BP in the oil industry. BP (65%) and Anadarko Petroleum (25%) are co-owners (along with Mitsui of Japan, at 10%) of the ill-fated oil well presently gushing in the Gulf of Mexico.
BP is serving as the lightning rod for the public’s outrage. Its executives were hauled before Congress for a grilling. In the face of harsh criticism, the company has suspended its dividends, cut scheduled investments and liquidated some $US10bn in assets so as to establish a $US20 billion compensation fund. In an unprecedented move, BP has just been asked by the US Department of Justice to notify it of any “corporate restructuring, reorganisation, acquisitions, mergers, joint ventures, sales, divestments or disbursements” to counter the possibility that the oil giant could limit its liability.
In the meantime, co-owner Anadarko, a US-based company, has just paid out its July dividends and affirmed that it will continue to do so in September and December. And the company has by and large escaped the public and politicians baying for blood.
You might think BP was the operator of the sunken Deepwater Horizon rig which triggered the oil spill, and Anadarko, as the passive investor, should be spared. In fact, the rig was operated by neither. Transocean, a US company which recently relocated to Switzerland, was the owner and operator of the oil rig. Unless you have been following the disaster closely, you probably haven’t heard of them either.
In recent years, leading companies have had to shoulder a disproportionate share of the blame for misdeeds, acts of negligence or just bad luck. Irrespective of whether accusations are justified, the point is that they tend to hit industry leaders hardest, on account of these firms’ iconic status and market share. More generally, it seems that industry leaders are held to much stricter standards than the minnows.
This would seem to be an increasingly prominent yet largely overlooked source of diseconomies of scale, the notion that firm size – beyond a certain point – leads to an increase in average unit costs. Complexity is one frequently cited source of such diseconomies: as firms grow in size, managing a multitude of different operations and locations requires disproportionate coordination efforts which nudge unit costs upward. The higher standards expected of industry leaders (in the wake of a disaster or more generally) would seem to be another, growing source of such diseconomies.
Telstra has for a long time been viewed as the 600 pound gorilla in the Australian telecoms industry. The company’s dominant market share (mostly a legacy of its former monopoly status) make them a popular target of criticism from customers, suppliers, rivals and regulators. The same goes for Microsoft which in some circles is portrayed as a satanic force. Dealing with complaints, countering criticism and “setting the record straight”, as well as fighting law suits can be taxing on company resources and management time. Industry leaders are often singled out and held accountable for their entire industry. Activists of all kinds know that going after the “soft target” at the top of the industry is the quickest and most efficient way to affect change, thus elevating the leader’s costs.
Source: Frank Wright
Even companies previously embraced by the public are in danger of a backlash once they become sufficiently dominant in their industry. Google comes to mind. Even Teflon-coated Apple has recently come in for criticism in some circles for its powerful position on account of iTunes and/or its association with supplier Foxconn.
Market-leading size and position are often the ultimate objective of company strategies. Firms would do well to remember that such exalted positions are precarious. As Icarus discovered, the wings that allowed him to escape from his island prison also led him too close to the sun and, ultimately, his downfall.
Andre’s addition: I would throw in the disproportinate attention paid to Nike‘s (and, as Tom highlights, more recently Apple’s) outsourced labour practices as another version of this. Similarly McDonald’s seems to receive much greater scrutiny on the ‘healthiness (or not)’ front than do smaller (i.e. less successful) burger vendors.
Can anyone think of further examples (particularly Australian)?
International BS Blog 
