Is the Life Expectancy of Companies Really Shrinking?

There is a prevailing narrative that the life expectancy of large companies, faced with the challenges of technological disruption, has been reducing for some time. Work done (PDF) by Professor Richard Foster of Yale University (above, and which I talked about here) in particular, seems to show that the average lifespan of a company in the S&P 500 index has decreased from 61 years in 1958 to just 18 years today, a run rate that would mean that by 2027, more than three-quarters of the S&P 500 will be companies that we have not yet heard of. 

Yet perhaps the picture is actually more nuanced. This analysis by Boston Consulting Group looking at the patterns of entry, growth, and exit for 35,000 publicly listed companies in the US since 1950 shows that over the long-term company lifespans have indeed decreased, yet in the recent past they have plateaued and may have actually slightly increased. Whilst human lifespans have increased markedly since 1950, say BCG, company life expectancy has almost halved:

This is also reflected in the five year company mortality risk (which, for public companies traded in the US, is now at 32% compared with a 5% risk 50 years ago):

But as Bloomberg point out, the data incorporates not just bankruptcy and liquidation but also merger and acquisition, and shows that whilst there was a dramatic decrease in corporate lifespan (and increase in mortality risk) during the 1970s, 1980s and 1990s this has, since around the turn of the century, actually stabilised. What's more, analysis of the annual rate of turnover in the Fortune 500 by the Kauffman Foundation appears to support this picture – whilst the long-term trend line is up, the recent short-term one is down:

It's difficult to navigate through all the myriad factors to identify what might really be behind this picture, but perhaps the real story is less about the impending death of large businesses and more about their need to adapt – to move through business and product life cycles more quickly than before, to be more focused on systematic experimentation and organising swiftly around opportunity.