Managing for the long run
Dr Isabella le Breton-Miller & Professor Dr Danny Miller
“Family firms are the dominant form of organisation, even though we don't study them or talk about them often,” said Dr Isabella le Breton-Miller, who was presenting research from the book Managing for the long run: Lessons in competitive advantage from remarkable family businesses, written by her and her husband Professor Dr Danny Miller. In addition, “we discovered that family firms tend to outperform.” Disagreeing with Professor Carney, the Millers emphasised that family firms live extraordinarily long. They exist for 24 years, while a new venture with a lone founder generally has a lifespan of only eight years.
Dr le Breton-Miller : “To place our work in context: when we started studying family firms, we experienced the explosion of the first .com bubble.” Amidst the crisis, family firms didn’t act like other companies – they outperformed and survived longer. “It’s because they had a different philosophy of management,” – one geared towards a long-term vision, passing the business on to a new generation. “Businesses were not there to make a quick buck.” What can other companies learn from family businesses?
The researchers studied 40 family-controlled companies that had been leaders in their markets for decades – admittedly, a favourable sample. Half of them were publicly owned, the other half privately owned. Of the family businesses, 25 had experienced a period of poor performance, and one had even failed. “We had very extensive files on each of the companies, and we went and interviewed the family members, consultants who worked with them, clients – whoever we could get to.”
Upon studying the family businesses, it turned out they weren’t marked by the usual distinguishing features of successful companies, like grand strategising, changing strategies, and charismatic leaders. Dr le Breton-Miller: “All those traits that you’re supposed to see in great businesses were not so visible.” The Millers went back to the drawing board and the data they had collected.
“We found that the four driving priorities in strategy – which we call the 4 Cs – did emerge.” They are there to support specific strategies:
1. | CONTINUITYFamily businesses pursue a lasting and substantive mission, not as a money-driven strategy. The New York Times provides a good example. Its mission is to have an enlightened electorate. When the Pentagon Paper, a confidential file on the Vietnam War, leaked to a New York Times’ journalist, the newspaper published it in spite of government threats. |
2. | COMMUNITYA family-controlled business has a sticking, caring culture, not an internally competitive one. It’s very selective, but once you’re in, you’re in for life. An example is the Hallmark company, in the early 2000s. A huge court of employees was about to retire and sell their stocks, but due to the .com bubble, they wouldn’t take home as much money as a few years before. The family decided to pay for the difference and cashed the employees at the top of the market. It cost the family ten per cent of their own wealth. |
3. | ConnectionFamily businesses build connections by securing generous and longer term relationships, not one-shot bargains. They are benevolent, responsive partners. For example, when a Becdel senior heard from another executive that oil reserves had been found in Alberta in the middle of the twentieth century, Becdel proactively drew up a plan and got to build the pipeline a year later. |
4. | COMMAND Family-controlled businesses take command by acting as unfettered stewards rather than servants of shareholders. The family company Michelin, for example, produced the radial tire after Mr Michelin himself had transferred its future inventor from a financial position to R&D. Once the tire was invented, it became clear it would last far longer than other types of tires – a disaster for marketing and sales, according to conventional wisdom. The family decided to bring the tire to the market anyway, and Michelin became the market leader in tires for the next 20 years. |
The Cs are the result of family business’ long time dimension. Professor Miller: “The moment they expand the event horizon, [family-controlled companies] are forced to expand their service to the different stakeholders; they are forced to consider their employees because they need their employees to work hard for the mission and to be cooperative; they are forced to form longer term relationships with partners, because they will be there, more loyal and richer, and they are going to have relationships that are not transactional, that allow for flexibility and growth.”
The intensity of the four pillars differs per company, depending upon its strategy. In the Millers’ model, there are always two dominant pillars and two support pillars. Innovators like Michelin need to be bold, so they need strong command and a strong community. Operators like Wallmart need good connections to suppliers like P&G and focus on continuity by eliminating as much human labour as possible. When a company has only one pillar, or all pillars but no dominant ones, things go wrong. At Levi Strauss, there was an exclusive focus on community at some point. 200 managers were working on their brand and culture, the project exceeded all time limits, and in the end everyone had to reapply for their jobs.
After publishing the book, the researchers took on studying a more varied sample of family businesses in terms of size, legal context, and ownership forms. The Millers found that family firms perform best when: family involvement in large firms is limited; family firms are small; or, the institutional context is less developed. On the other hand, family firms perform worse when: temptations to exploit business arise as companies go public; there are multiple family factions; later generation executives are in charge; or, there are more family members embedded in higher management.
