A model company for the next millennium

IT IS a deal that marks the end of a century, but it may also signal the shape of things to come in the next. Thirty years ago the idea that Daimler-Benz would merge with Chrysler would have seemed ridiculous; 10 years ago it would have been intriguing but unrealistic. And now? If it works - a big "if" - business in the next century really will be quite different from past experience.

This has been the century of giant corporations. Giganticism has been closely linked with globalism. Until the middle of the last century companies were tiny. Then came the consolidation of the textile industry into large companies, followed by the railways, the oil industry and so on. Each saw waves of mergers. The motor industry, which if you include suppliers and distributors is this century's largest, has remained quite fragmented for most of its existence - unlike, say, the civil aircraft or computer industries. It has consolidated through mergers and takeovers, including cross-border deals, but it has moved relatively slowly.

Meanwhile, the world economy has become more integrated than at any time. In 1820, just after the Napoleonic Wars, the proportion of foreign trade to world output was tiny (left-hand graph). It climbed rapidly in the second half of the 1800s and the 1920s, then fell back during the 1930s depression. In the 1990s it has passed all previous records.

In the last century globalisation took place principally through trade between countries: companies were entirely national entities. This century there has been a slow process of corporate globalisation, with the creation of companies that call themselves multinationals but have really been national companies with large international operations. Ford has operations around the globe but is still a US company. Aside from the early examples of cross-border mergers like Royal Dutch/Shell and Unilever, there have been no true multinationals in the sense that no one country's culture dominates.

Maybe the splurge of cross-border deals in the 1990s will develop into genuine multinationals, but we don't yet know. There are apparently successful marriages like the Swedish-Swiss ABB, less happy ones like the Swedish- US Pharmacia and Upjohn, and there are partnerships still to be proven, like SmithKline Beecham and LucasVarity. Because marriage between companies, as between people, is much quicker and easier than divorce, these deals can take a long time to unscramble if they don't work. The catastrophic Anglo-Italian Dunlop/Pirelli union showed the misery a bad match can create.

But what this rash of deals - of which Daimler-Benz/Chrysler is the largest, most dramatic and most important - demonstrates is the pressure of globalisation on national corporate entities. Companies need to refashion themselves into a form which genuinely cuts across national boundaries. If the Daimler- Benz side (which will own 55 per cent of the group) ends up dominating Chrysler, as most people expect, it won't really be a successful response to this pressure. At some stage, and that might be 20 years down the line, the thing will fall apart.

The issue, of course, is culture. There has been no successful German/American corporate partnership based on reasonable equality between the partners. Lots of US companies have German subsidiaries, including GM and Ford. Some German companies have subsidiaries in the US. But that is different; that is this century's corporate model. The issue now is whether we are seeing a glimpse of the 21st-century model. What might be its key features?

The first must be a single concept of management, one global standard. At the moment there is an extraordinary variety of different national management models, and while there will always be some variation between countries, it need not be so wide. The management consultancies, the Andersons and the McKinseys, operate very much the same system around the world; indeed one of their main functions is to apply the lessons of a business in one country to a similar one in another.

They find that the distinctions between different sorts of business in the same country are much larger (and need to be larger) than the distinctions between similar businesses in different countries. You need to manage, say, a hospital in a different way from an oil refinery wherever they are. But hospitals and refineries all round the world have to be managed in much the same way.

The second feature is global reporting and accounting standards. This might seem obvious, but astoundingly, despite the globalisation of investment, there are enormous differences. There are even differences between the US and UK, and much larger ones between the US/UK models and Germany and Japan. Italy is something else again.

The distinctions are partly technical - how should goodwill be accounted for? How should employee options be charged to a company? - but they are also concern transparency. There is no global standard on the extent to which a company should reveal details of its finances to shareholders, a basic building block essential for establishing accounts. If there is transparency, the accounting standard does not matter too much: everyone can make their own adjustments. But if the raw material is suspect then investors are flying blind.

The third element of the newmodel is to be found in the investors. I do not think there need be a single investment model, indeed it would be much better if there were many approaches to investment, some focusing on value, others on growth potential and so on. Diversity is a strength. But in practice we are moving to single global investment standards. Growth funds all round the world will adopt similar practices, so will fixed- interest funds; I suppose venture capital funds will also develop the same way.

In other words, while within any one country there will be a variety of investment approaches, the differences between countries will be much smaller. The Daimler-Benz/Chrysler group will be held by similar investors around the world: those investors will just happen to live in lots of different countries.

The development of genuine multinationals will further increase the importance of fund management as a key skill. Money crosses national boundaries with the speed of light; technical knowledge whizzes across very quickly too. Management will increasingly become homogenised. If management in one industry is under-performing, you subcontract it to another country.

So what is comparative advantage if is it not having more money, better technology or better managers? Answer: the portfolio management skill of knowing where to place the chips - until, at least, those skills become homogenised too.

I suspect that company structures will become even less stable in future, but the raw material of investment - money - will be more stable. Look at the right-hand graph of prices here and in the US since 1800. Imagine you are in 1938, where the line is, looking back. Everything that has happened in the previous 150 years suggests that prices do not change very much. There have been dreadful wars, colonisation, industrialisation, but the value of money does not change very much. Nothing would have prepared you for the right-hand side of the graph, an explosion of inflation. It is at least plausible that the century to come will be one of stable prices.

Now put all this together - a common management approach, common reporting standards, common investment requirements, and common (or at least stable) money. These will put tremendous pressure on corporations to do better, to be leaner, faster, cleverer. If Daimler-Benz/Chrysler pulls it off, it becomes the new model. If not, well there is always divorce.