Topic Centers

Diversified Industrials: Horizons

Digitalization. Complex supply chains. Growing regulation and compliance. Conglomerates and industrials operate in an increasingly dynamic environment – one which requires creative solutions and forward thinking.

Is the age of conglomerates over?

By Detlef Hass

Ask this question to Joe Kaeser, CEO of Siemens, and the answer would be yes — amid new technologies and chaotic geopolitics, "traditional conglomerates," he says, "have no future."

Siemens' dividing itself into three distinct divisions is just one example that proves the point. Other large conglomerates like Philips, Maersk, and Hewlett Packard have also split up in recent years. At Hogan Lovells, we see that conglomerates that struggle to align their corporate and reporting structures have a greater tendency to divest than others. From our perspective, properly designed and managed corporate and governance structures are particularly important for conglomerates to manage their regulatory and ethical risks in a responsible manner.

Yet as a particular group of what is called "traditional" conglomerates might be considered by some as dying out, others around the world continue to emerge — suggesting that the model may be evolving rather than disappearing, and that different conglomerates are simply at different points in their evolutionary life cycles. Whatever the case may be, the conglomerates that thrive today appear to be those that are well-adapted to the increasingly rapid pace of geopolitical change and technological innovation.

Japanese trading houses (the sogo shosha), for example, have successfully recalibrated away from their traditional commodities play and into other businesses — tech, energy, shipping, financial services, consumer goods, and more. Rather than simply trading, the modern sogo shosha has adopted a business approach similar to that of the private equity firm: they evaluate projects with an increasingly global perspective, make direct investments, manage their affiliates from a return-on-investment perspective, and divest after hitting pre-defined timeframes or milestones.

Others, like the UK-Canadian global asset manager Brookfield, have followed suit, while business groups in emerging markets — e.g. India, South Korea, and China — have not pursued the divestment route taken by many of their Western counterparts. With each company in these groups run as a legally independent entity — replete with their own board, shareholders, and incentive structures — top management has greater autonomy and is less vulnerable to, say, the activist campaigns that have so rankled traditional conglomerates of late.

These latter business groups are at different points in their life cycles, seeking to diversify rather than narrow their focus. Meanwhile, tech titans with huge cash piles are doing the same, becoming large conglomerates in their own right. Alphabet is now in everything from autonomous vehicles to medical devices. A recent Bain report confirms that for the first time, global M&A activity was dominated by deals taking firms into new lines of business rather than to build scale. That is indicated also by the finding that tech businesses are increasingly being acquired by non-tech investors rather than by competitors.

Such success stories tell a different story: one where new organizational models, alongside the promise of digital technology and data to transform every industry, can lead to new iterations of the traditional conglomerate. Indeed, the conglomerate might in some cases be a more effective organizational form of business given the contemporary challenges companies face today, such as the climate change, digitization, and ethical values recently more effectively demanded by investors, activists, and political bodies alike. All these aspects require a business approach which is more driven by values and attitudes applied to doing business as such, rather than to only one specific business in a specific industry.

Business organizations also need to evolve quickly. Intelligence and know how are better gained from a wider pool of resources, which are more likely available in conglomerates given their size and with their investments being spread across many industries and regions of the world. That is true in particular where distinctions between industry sectors become evened out as we see between media and technology or more recently between automotive and mobility.

Whilst it was for many years enough to adhere to the regulatory framework of a specific industry, we are seeing now that businesses need to consider adopting a framework of values which go far beyond that and apply in a similar fashion to multiple industries. And it is only a matter of time before ethical aspects will be transformed into regulation. While businesses, until recently, mainly stumbled over alleged violations of regulatory limitations on their business, we are now seeing many examples where a perfectly legally compliant project comes under scrutiny because it is perceived as ethically questionable and not in line with current trends. Siemens recently came under scrutiny from environmental groups regarding their contract to deliver critical railway infrastructure for a new Australian coal mine project. In that context, compliance is suddenly going beyond the regulatory framework to involve human rights and sustainability and the like as well, no matter how big or essential to the business the project is.

That risk cocktail has often been described as political risk. The challenge is to monitor that in all its facets, to keep the core values of the business in shape, and to implement them constantly and consistently into all parts of the business organization, including its supply chain management, its acquisition of new projects, or its expansion into new areas of business.

We are frequently seeing these issues when looking at businesses regarded as 'giants.' Many of them have at their core a clearly defined purpose as distinct from shareholder value often combined with a roster of values which they apply to their internal culture and their way to deploy their products and services. It will be interesting to observe whether that way of doing business will be able to be particularly well managed by large conglomerates no matter whether they are seen as tech giants, industrial giants, or otherwise. Such differentiations will become less visible and relevant anyway, given the overlay of digital technology across many industries.


The evolving nature of conglomerates requires sector-based counsel that understands not only the specialized legal implications at play, but broader business goals and solutions for clients in every stage of their life cycle — whether that means helping a company go digital, seizing opportunities in new markets, or otherwise.

That’s what the Diversified Industrials sector group at Hogan Lovells is here to do. In the articles that follow, we intend to provide guidance and start conversations around the shifting trends, challenges, and opportunities facing conglomerates of today.

Loading data