"A company run by a clever entrepreneur might command a high value in the stock market," says the member of the faculty of NYU's Stern School of Business. "It then buys a doggy company, folds its earnings into its own and maybe they'll be capitalized at a higher value, regardless of business efficiencies."

Sylla says this kind of financial shuffling was a hallmark of once-high flying conglomerates like Gulf + Western, which disappeared in the 1990s, having proved to be as unsteady as its Columbus Circle headquarters in Manhattan, which swayed so much in the wind that some employees became seasick.

As to diversification--shareholders can achieve this on their own, without the added expense of corporate intermediaries. Indeed, a sophisticated investor who seeks to diversify by industry can be frustrated by conglomerates, which often have major operations in more than one.

Aggregating disparate businesses into a whole has other disadvantages, from adding extra management costs to reducing clarity by bundling financial results in a way that confuses or defies investor analysis.

"What is deeply troubling to me," says Sundaram, "is that CFOs at many conglomerates often tend to use corporate performance, or hurdle, rates to measure divisional rates." The corporate average of 12% annual growth could, for example, be achieved by matching an old-line unit with a 6% rate and a go-go division that's growing 18%. "CFOs have this habit of saying, 'Everybody deliver 12%.' This leads to the likelihood that the 18% division feels happy underperforming, while the 6% division cannot deliver."