Shoemaker, stick to thy last

Old habits die hard. Goldman Sachs and Morgan Stanley, the last two American investment banks, are turning themselves into bank holding companies, marking the end of the era in which investment banks--essentially, companies that arrange and underwrite issues of securities--and commercial banks were separate.

There was a time when bank holding companies were unlawful. There was a time when financial companies, at least, were required to concentrate on the businesses that, presumably, they knew. Then came the new era, when banks were permitted to buy insurance companies and stock brokers. (For all I know, a bank could own the newsdealer on the corner or the restaurant down the street.)

Twenty years ago, in the pages of The New York Times, I suggested that

Small companies often fail because their owners, who are knowledgable about their own businesses - how to make shoes or sell dresses - are not skilled at basic management that is common to all enterprises. Large companies have the opposite problem. Their executives know management, but all too often they have forgotten how to do business.

I think I was right then (and, indeed, the deal I was talking about--a takeover of Federated Department Stores--subsequently proved that I was), and that the idea I expressed then is still true today. Yet even in the midst of a crisis provoked by unwillingness to make corporate leaders stick to their lasts, we have not learned the lesson.