While CEOs often justify megamergers by promising increased operating efficiencies, research suggests that the real benefits are less about economies of scale and more about oligopolistic advantage. A comprehensive study of the US economy by Jan De Loecker, Jan Eeckhout, and Gabriel Unger found that “markups,” a proxy for market power that measures firm-level difference between prices and marginal costs, have increased sharply over the last several decades. In 1980, the average firm charged 21 percent over marginal cost; by 2016, the average markup had grown to 61 percent. This trend has been observed not only in the United States, but in other developed economies as well.

Like Nucor, Handelsbanken shares the rewards of its success with those on the front lines. In any year that the bank’s return on equity exceeds the average of its peer group, one-third of the difference is paid into a foundation that invests on behalf of employees, mostly in Handelsbanken shares. The proceeds are distributed equally among all employees, regardless of rank. The contribution in 2018 was $90 million, or approximately $7,500 per employee—a significant sum for a frontline staff member. Withdrawals can be made once an employee turns sixty. The stake for a long-tenured associate can be worth over $1 million.

The key to Handelsbanken’s unrivaled performance is its highly unorthodox organization model. In 1970, Jan Wallander, an economist 9 working at a regional bank in northern Sweden, was appointed as Handelsbanken’s CEO. At the time, the bank was losing money and was embroiled in a dispute with regulators. As Wallander analyzed the bank’s underperformance, he became convinced that overcentralization was the culprit. The bank’s bloated head office and rigid planning process made it unresponsive to shifts in economic conditions and customer needs. (At the time, loan approvals took two months to complete.) Moreover, senior bankers had made a spate of poor credit decisions that had imperiled the balance sheet.

Notice that Commerce is indeed a collection of 5's (best) and I's (worst). The bank was so successful because it had the wisdom to know the difference, to know where it should be winning and losing. Being worst in class on the things that were least important to its customers allowed it to be best in class at the things that were most important to them. That's the trick. You have to be bad in the service of great — and you have to be very smart about which is which.

Notice that Commerce is indeed a collection of 5's (best) and I's (worst). The bank was so successful because it had the wisdom to know the difference, to know where it should be winning and losing. Being worst in class on the things that were least important to its customers allowed it to be best in class at the things that were most important to them. That's the trick. You have to be bad in the service of great — and you have to be very smart about which is which.