Dear John,

Can a company ever be too big? I would say, no.

But let us be clear what we mean by size. Certainly, we would agree that the days when physical size alone (as represented by a company’s asset base, sales, number of employees, and so on) was necessarily good are over. The fate of conglomerates at the hands of leveraged buyout specialists in the 1980s and of South Korea’s chaebol today illustrates that.

Nevertheless, traditional "bigness"—that is, book equity or asset value—is important. Developed and managed appropriately, no amount is too much. But this is only part of the story, because the size that really matters is market capitalization.

As you know, market capitalization is simply a measure of the value the market places on a company. You need a high market capitalization to capture globalization’s growth opportunities. Everyone is rushing to capture these, and since the fast way to grow is by acquisition, it is a buying spree. A big market capitalization makes it cheap for you to buy and difficult for others to buy you.

Now, a firm’s market capitalization is driven by its physical size and how well it performs in the market in generating...