BCG's database of more than 10,000 listed firms shows capex falling 10 percent relative to revenue over the past decade, while payouts and cash rose by over a third. Inside companies, the money that does get spent is often allocated by habit. Fixing that is the cheapest performance program available to any board.
Most large companies run two governance regimes for the same money. Capital expenditure gets the full treatment: an investment committee, hurdle rates, NPV models, board review. Operating expenditure gets a budget, and the budget gets rolled forward. Same shareholders' cash. Two completely different standards of scrutiny.
That divide is an accounting artifact, and it has become expensive. Many of the biggest bets companies place today, in marketing, technology programs, and headcount, run through the P&L. They are governed as line items, negotiated once a year, and defended by whoever owned them last year. My argument is simple. Every corporate spend is a capital allocation decision, growth spend above all, and it should be governed as one.
The process is less analytical than boards believe
A 2025 study in Management Science by Hoang, Gatzer, and Ruckes, built on an extensive survey of chief financial officers, found that capital allocation in most companies is far less analytical than the NPV veneer suggests. Divisions use information asymmetry to make their projects look better in the fight for funding. And half of the CFOs surveyed admitted to what the authors call corporate socialism: spreading capital across units to keep the peace rather than concentrating it where returns are.
I recognize both behaviors from twenty years of transformation work. Division heads receive lump sums roughly proportional to current revenue. Each defends the base. The corporate center trims a few percent everywhere to look disciplined. Nothing gets killed, nothing gets doubled, and the portfolio of spend drifts further from the portfolio of opportunity each cycle.
The cost of that drift is measurable. Research by Lovallo, Teece, and colleagues in the Strategic Management Journal, covering several thousand firms over 18 years, found that year-to-year reallocation across business units correlates positively with firm performance in all but the most extreme cases. Companies that move money outperform companies that defend it. Yet Morgan Stanley's Counterpoint Global, rating listed companies on allocation skill as of September 2025, judged only 16 percent exemplary. The other 84 percent were standard or poor.
Growth spend is the least governed money in the company
Here is where the capex bias does real damage. A 40 million dollar plant expansion will be modeled, challenged, and stage-gated. A 40 million dollar annual run rate in marketing, or a technology program, or 250 added heads across a region, often clears on a one-page budget variance.
The fix is not more bureaucracy. It is one standard instead of two. If a spend commits resources today in expectation of future cash flows, it is an investment, whatever the accountants call it. Growth marketing is an investment with a payback period. A hiring plan is an investment with a ramp curve. A systems upgrade is an investment with a J-curve and a real option attached. Treat them that way and the quality of debate changes immediately.
What distress teaches about money
I have spent more than twenty years inside restructurings, across some fifty engagements in more than thirty countries, several of them as interim CFO. Distressed companies have one advantage over healthy ones, and it is instructive. They allocate every unit of currency, because they have to.
In a turnaround, the 13-week cash flow becomes the constitution. Nobody asks whether a payment is capex or opex. The only questions are what cash goes out, what comes back, when, and with what certainty. At one industrial client, we ran a weekly committee where a 30,000 dollar maintenance contract and a 3 million dollar tooling order were argued on the same terms: return, timing, alternative use of the cash. Within two quarters, the company had redirected a meaningful share of its spend base toward the product lines that actually earned their capital.
None of that reallocation required new money. It required a single standard. Healthy companies should not wait for a crisis to buy that discipline. The crisis version is brutal and late. The voluntary version is cheap.
Four moves that do not require a transformation program
First, put growth opex on the investment committee agenda. Rank the enterprise initiatives that matter, ten to thirty at most, whatever their accounting treatment, and fund them by decision, never by legacy.
Second, build the year one budget from the strategic plan, and let only the CEO and CFO approve deviations. Otherwise last year's budget becomes this year's, with a cosmetic haircut.
Third, meet monthly to reallocate, and hold back an unallocated reserve, somewhere between 5 and 20 percent of discretionary spend depending on the industry, so that mid-year decisions are real rather than theoretical.
Fourth, make the CEO the decision maker, with the CFO enforcing the arithmetic. Allocation delegated entirely to division heads produces the corporate socialism the Management Science survey documented. It cannot do otherwise, given how those leaders are measured and paid.
None of this requires new systems. It requires the leadership team to accept that saying no to a familiar spend is the same act as saying yes to an unfamiliar one.
Budget and Allocation
Not every expense can or should pass through a committee. Payroll for the existing business, compliance, maintenance of safe operations: this is the cost of being open, and running it through investment logic wastes senior time. The discipline applies to the discretionary layer, where money is genuinely choosing between futures. Judgment sits in drawing that line, and companies will draw it differently.
The principle holds regardless. A company's real strategy is not the document. It is the sum of where the money went. Most executive teams govern a third of that sum with rigor and let the rest roll forward. In 2026, with capital more expensive and investors reading the whole ledger, that habit is the one to break.
The budget tells you what a company was. Allocation decides what it will become.
