Organizational Purpose and Longevity

The lifespan of human organizations varies widely by organizational mission, but the mechanisms driving these differences are ill-understood.

Post-IPO companies exhibit a constant hazard rate. Public firms dissolve (through bankruptcy, merger, or acquisition) with a half-life of approximately 10.5 years.¹ If 100 firms listed in year one, by year eleven approximately 50 will have disappeared; by year twenty-two approximately 75 will have disappeared. The corporate structure’s predictable and brief mortality stands in sharp contrast to other forms of human organization. On the surface, private non-profit universities are similar to companies; both maintain facilities, run revenue-generating activities, hire personnel, and are governed by boards. However, universities enjoy far longer lifespans. The average age of the top five public US firms, by market capitalization, is less than 30 years. The average age of the top five private non-profit US universities, by total endowment size, is over 250 years. This is likely limited by the fact that the US nation state is only 245 years old. In the UK, Oxford and Cambridge are over 900 and 800 years old, respectively. Some evidence suggests that religious organizations can be even more long lived than universities; the Catholic Church has been a functioning organization for over 1900 years.

In addition to longevity, these different organizational structures are associated with starkly different missions. Among public companies maximizing shareholder values appears to be the overwhelming organizational purpose, especially in firms lead by executives who earned their MBA after 1980.² Universities, religious organizations, and other nonprofit entities seek to achieve a far broader array of objectives. We do not know if this relationship is causal, and, if so, what mechanisms might link an organization’s mission and its expected lifespan. This meeting will draw on scaling theory, emergent engineering, and history to attempt a crude look at these mechanisms.

¹ Daepp, Madeleine IG, Marcus J. Hamilton, Geoffrey B. West, and Luís MA Bettencourt. "The mortality of companies." Journal of The Royal Society Interface 12, no. 106 (2015): 20150120.

² Acemoglu, Daron, Alex He, and Daniel le Maire. Eclipse of Rent-Sharing: The Effects of Managers' Business Education on Wages and the Labor Share in the US and Denmark. No. w29874. National Bureau of Economic Research, 2022.