Too big to fail means too big to succeed. There are several ways that "too big to fail" puts the company at risk.
1. Political pressures. When there is a concentration of control, that concentration can be affected by political pressures. That is how Bank of America got into real problems in the 1970's. There was political pressure on it to make loans to poor countries and when those countries could not pay the loans back, the bank lost a lot of money. Similarly, the contracts that the car companies signed were partly due to the political pressure that the unions could put on the companies. When we have companies "too big to fail", congress and others can manipulate those companies into doing non-profitable actions.
2. "Deadwood". In all public corporations, there are a few people who are not the best. We call them, "deadwood". The problem with a company that is "too big to fail" is that there isn't the competitive pressure to get rid of these people. Over time, they rise to the top. Because they believe that the company can not fail, they make all sorts of bad decisions. These bad decisions lead the company into unprofitability.
3. Fraud. All organizations of a certain size have people in them who have criminal minds. While the company has people at the top who are ethical, those criminal minds are kept in check. When the "deadwood" get in charge, they only look at the financial results and not at the costs to the people beneath or to the criminal actions that may have generated the financial results. Thus, AIG was brought down by the actions of one small office where the management did not care about the ethics of those below them. The same is true for Salomon Brothers. The same is true for a major law company whose chicago office brought down the company.
4. Loss of focus. Many successful companies have to switch what they do in order to survive. However, many times, a new CEO will come in and change everything only to lose the company.
