Managing for the long run
Insights from leading family enterprises
Description
To sustain good performance, companies must prioritize long-term interests and be stewards with courage and foresight. They should focus on a meaningful, lasting mission and build a team driven by shared values, taking initiative for the firm's benefit. Establishing lasting, mutually beneficial relationships with external partners is crucial.
Despite potential skepticism due to the rarity of patient shareholders and trust among management, these principles remain essential. The success of family-controlled businesses demonstrates the value of this approach, offering benefits for all stakeholders and society, highlighting the shortcomings of short-termism and the potential of a different, more sustainable path.
Table of contents
01Fcbs performance history
Family-controlled businesses (FCBs) often find themselves at the mercy of the business press, which tends to spotlight any internal disputes or battles for control rather than focusing on their consistent financial achievements over the years. However, when one delves into the data, it becomes evident that exceptional FCBs not only lead their industries for extended periods but may also owe their success to their family-controlled nature rather than seeing it as a hindrance. These enterprises constitute approximately 35-40 percent of the Fortune 500 and S&P 500 companies, and they are responsible for about half of the employment opportunities in the United States, contributing to around 78 percent of the new job creation annually. This significant economic impact is even more pronounced in regions such as Asia, Europe, and South America. Notable examples of FCBs include giants like Cargill, Bechtel, Michelin, Hallmark, the New York Times Company, Timken, Fidelity Investments, W.L. Gore, Estee Lauder, S.C. Johnson, L.L. Bean, Wal-Mart, IKEA, Tyson Foods, Motorola, Corning, Nordstrom, and Levi Strauss.
In terms of their approach to business, FCBs often adopt philosophies that starkly contrast with those of non-FCBs, reflecting in three main areas: ownership, business management, and social relationships. Where non-FCBs view ownership as a temporary state, aiming for quick profits and showing little loyalty to the enterprise or its workforce, FCBs see themselves as long-term stewards, committed to building enduring partnerships with their employees. From a business management perspective, non-FCBs focus on tactical, short-term gains, often at the expense of downsizing or pursuing other acquisitions to please the market. Conversely, FCBs adopt a strategic, long-term outlook, showing a keen interest in future management and investing in their business and people. Socially, non-FCBs prioritize individualism, fostering a competitive environment among staff for career advancement, whereas FCBs cultivate a collective ethos, encouraging employees to act in the firm’s best interests and maintaining strong relationships with vendors and partners.
02Fcbs top four priorities
Highly successful family-controlled businesses (FCBs) are characterized by their integration of four key driving priorities, which they pursue with such fervor that they become ingrained passions within the organization. These priorities are command, continuity, community, and connection. When these elements are skillfully blended and configured, they become a wellspring of vitality for FCBs. All triumphant FCBs weave these four priorities into their operational fabric, although they may emphasize different aspects at various times. They also adeptly counterbalance any potential imbalances or excesses in one area with the strengths of another.
Leaders of FCBs possess the ability to make decisive and bold decisions, unencumbered by the constraints typically imposed by external shareholders. This freedom allows FCB leaders to act swiftly and innovatively, supported by a management team that shares this autonomy. For instance, Corning, a company steeped in the ancient craft of glassmaking, has consistently led its industry in innovation, transitioning from light bulbs to heat-resistant Pyrex, and now to fiber optics and photonics for DNA manipulation. Corning is even engaged in photonics projects that will not yield marketable products for another two to three decades, a timeline that many companies would not dare to entertain. The essence of the command priority for FCBs lies in their ability to act expeditiously, their willingness to defy industry norms, their courage to capitalize on market downturns, and their commitment to innovation and a diverse yet cohesive management team. This independence in command affords them the agility to adapt, be original, and outmaneuver competitors in seizing opportunities.
FCBs are also defined by their enduring and passionate commitment to a mission they deem critically important, investing deeply in the competencies required to excel in their chosen field. They view the company as a long-term vessel for their mission, eschewing short-term tactics and quarterly earnings. For example, the New York Times, with its mission to deliver impartial news, has taken on powerful political interests in publishing the Pentagon Papers and exposing the flaws of New York's civic administration. FCBs are inspired by their mission rather than motivated by profit, and they persistently seek the capabilities to realize their vision. Continuity in FCBs is a blend of a cherished legacy and a family's dedication to nurturing the business for future generations, often at the expense of immediate financial gain.
03Fcbs Five Main Strategies
Brand builders enhance the perceived value of their products by crafting and embedding strong, resonant perceptions in the minds of consumers, which in turn significantly influence their purchasing decisions. Esteemed examples of Family-Controlled Businesses (FCBs) that excel in brand building include The Estee Lauder Companies Inc., Hallmark Cards Inc., S.C. Johnson & Son, Inc., L.L. Bean, Inc., and Levi Strauss & Co.
The strategy for building a brand encompasses four pivotal elements. Firstly, it involves the creation of a brand that stands out distinctly, possibly by offering a product that is not only superior but also fosters a deep emotional connection with the customer. Brands transform mere products into statements that customers are eager to express socially. FCBs are particularly adept at this due to their extensive experience, often surpassing that of their competitors. Secondly, it is crucial to continuously strive for an increase in market share, which enables the development of critical mass and the realization of better economies of scale.
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