In analyzing a merger, incorporating the macro context is
vital. For very large mergers, for instance, public policy concerns inevitably
surface even if they are typically ignored not only in merger analyses, but
also by in societal and even governmental public discourse. Analysis at this
level takes a societal standpoint, including on the relationship of business
and government. This does not diminish the salience of firm-level analysis, for
even how the respective organizational cultures would mesh is very important to
a functional merged company. This is even true regarding the respective
business-ethics climates, for it is not a given that a healthy organizational
culture dominates an unethical one.
In June, 2019, United Technologies “doubled down on the
aerospace market with an all-stock deal to merge with defense contractor
Raytheon Co., after UTC executives early chose to exit from the escalator and
air-conditioning businesses.”[1]
The anticipated combined company, “valued at more than $100 billion after
planned spinoffs, would be the world’s second-largest aerospace-and-defense
company by sales behind Boeing.”[2]
The annual revenue for 2019 would be $74 billion. UTC’s CEO at the time
estimated a billion dollars in cost-savings. Additionally, spending on research
could be increased.
On the macro scale, the merger would intensify the
consolidation in the aerospace and defense industry. Better terms from supplies
and the Pentagon had been putting pressure on contractors “to cut costs and
invest more of their own money in new technologies, such as space systems and
cyber security.”[3]
Consolidation has a major drawback, however, in that competition and thus trade
can be stifled. Society, through its government, rather than consolidated
industries must resolve anti-trust problems, and this is difficult when those
industries have significant power over legislative bodies and regulatory
agencies. Hence, for example, anti-trust law had not been applied to the five
largest American banks even after their complicity in the financial crisis of
2008. In fact, the bankers were able to use government funds to pay themselves
bonuses! So the question can
legitimately be raised whether anti-trust law even can be enforced when the
consolidated company or industry is not in favor.
If very large consolidated companies can rebuff regulatory
attempts to constrain or limit those companies, then even very unethical
managements can enjoy perches of power that are worrisome from a societal
standpoint. In the late 1990’s, for example, Hughes Aircraft merged with
Raytheon Missile Systems. In 2002, dioxane, a carcinogenic chemical that Hughes
Aircraft/Raytheon had been using as a solvent, was discovered in the ground
water under South Tucson, Arizona. Previously, Hughes had used cancer-causing
trichloroethylene since 1981, and several local residents had won settlements
on that chemical from Hughes.[4]
Perhaps Raytheon’s management fail to use adequate oversight over Hughes,
especially given that company’s track record, or was the purchasing company
tacitly involved. Something to ponder for a company on the cusp of growing
substantially through another merger in 2019, for an environmentally callous
group to be so big would indeed be a big deal.
At the company level, a board of directors subservient to
management or even a sordid corporate culture, such as that of Enron, can be
enough to thwart efforts to clean up from unethical conduct. Wells Fargo, for
instance, faced an entrenched corporate culture in “efforts” to stop charging
customers for unordered products. Plutocracy, or the rule of wealth, at a
governmental level means that such companies can not only continue acting
unethically but also extract monopoly or oligarchic rents. In the case of the
defense industry, the increasing power of the major contractors can even result
in pressure on lawmakers to go to war when diplomacy would have been a better
route. Indeed, a government’s spending can become loop-sided in favor of
defense because the major contractors are powerful enough to demand it because
it is good business. Hence U.S. President Lyndon Johnson kept the Vietnam
conflict going in large part because he was getting kick-backs from certain
contractors. In short, from being able to evade anti-trust enforcement to being
able to pressure or pay off presidents in favor of military engagements,
consolidated defense contractors can be said to have too much power.
[1]
Cara Lombardo and Doug Cameron, “Merger to Create Aerospace Giant,” The New York Times, June 10, 2019.
[2]
Ibid.
[3]
Ibid.
[4]
Tony Davis, “South-side Tucsonans Mobilize for Another Water-Pollution
Struggle,” Arizona Daily Star, April 16, 2017.
