Doing Well and Doing Good: Ross & Glendining ? Scottish Enterprise in New Zealand

Published by EH.NET (October 2010)

Stephen R.H. Jones, Doing Well and Doing Good: Ross & Glendining ? Scottish Enterprise in New Zealand. Dunedin, New Zealand: Otago University Press, 2010. 422 pp. $50NZD (paperback), ISBN: 978-1-877372-74-2.

Reviewed for EH.Net by Evan Roberts, Department of History, University of Minnesota.

Stephen Jones — now a research fellow at the University of Dundee, but formerly Director of the Centre for Business History at the University of Auckland — has written a well-researched history of what was once the largest manufacturer in New Zealand. Of course, ?in New Zealand? is a significant qualification to ?largest manufacturer? since establishment size in New Zealand manufacturing was low. At the peak in 1945, Ross & Glendining employed approximately 2500 people in its factories, and no single factory had more than a thousand employees (p. 324). Ross & Glendining produced clothing, shoes, and sundry woolen products exclusively for the New Zealand domestic market, after beginning life as an importer and distributor of foreign textiles. Since few readers of this review will have ever heard of the company, foreign interest in the book has to be motivated by something more academic than familiarity with the firm. Happily there is more to learn from this book than its specific and remote subject might suggest.

More general interest in this book is merited because of the clarity of its discussion of some common business and economic problems: managing and motivating dispersed employees, vertical integration (and disintegration) as a business strategy, and succession from the first generation of a tightly managed family firm to a limited liability company in the second generation. By highlighting these economic issues and discussing them for a couple of pages when they arise, Doing Well & Doing Good overcomes some of the limitations of the ?case study? or ?firm biography? genre. Jones is able to step back and be more critical, in part, because the firm failed. Writing more than forty years after Ross & Glendining was split up in 1966, Jones owes no one any favors in his account.??

The eponymous firm founded by John Ross and Robert Glendining — both Scottish migrants to New Zealand — began as a drapery importing and distribution firm during the New Zealand gold rush of the early 1860s in the Otago province. The parable that the riches to be found on nineteenth century gold fields were from provisioning rather than prospecting holds true in New Zealand too. Ross & Glendining was founded in Dunedin, the major center for Scottish migrants in New Zealand, and at the time the largest city in the country.? Being the closest city to the Otago goldfields and having a natural sheltered deep-water port contributed to Dunedin?s status as the largest city in the 1860s. Jones shows that the Dunedin headquarters were at first an advantage to the firm. After the Otago gold rush ended, being based in Dunedin was, at least, no barrier to success through the end of the nineteenth century. Dunedin, however, is the southern-most of New Zealand’s major cities. Being on the way to the gold fields gave it an early locational advantage. As gold declined in importance, and the center of New Zealand’s population and economy moved northward, by the early twentieth century Dunedin was clearly the [relative] laggard of New Zealand’s major cities. Although Ross & Glendining had opened its own manufacturing plants in the late 1880s, more than 90% of the firm?s profits between 1900 and 1914 came from warehousing and distribution of local and imported textile products (p. 227). Jones shows clearly how the import and distribution business was tied to where population and income were growing. The firm had to be on the ground in many different places far from the company?s headquarters.

Ross & Glendining faced a microeconomic problem: motivating and monitoring employees who worked hundreds of miles from the firm?s founders, owners and managers. Jones gives a clear exposition of how the well-known principal-agent problem works in practice (pp. 69-71, 142-43). Clearly grounded in theory, yet tractable to the general reader, Jones makes the story of Ross & Glendining?s employee-management problems relevant to a wider audience of economic and business historians than the title and subject of the book would suggest.

After the Otago gold rush ended in 1863 it was clear to the firm?s founders that profits could not keep growing by merely servicing the rush of migrants to the area. The search for alternative profit centers led Ross & Glendining into a range of vertical integration (and then disintegration) strategies over the firm?s life. The first of these was the establishment in the late 1870s of their own manufacturing plant, the Roslyn mill near Dunedin. The Roslyn mill remained part of the company to the end in the 1960s, and in the late nineteenth century with just under a thousand employees it was New Zealand’s largest single factory. A much less successful investment was the purchase of a large sheep farm (or ?station? to use the New Zealand parlance) in the Otago highlands in 1878. While profitable, Lauder Station demanded a disproportionate share of the owners? time, and required them to develop yet another set of skills beyond what they were already doing. When the reforming Liberal government came to power in 1890 with the intention of ?busting up? the great estates, the prospect of any capital gain from selling the station diminished too. Ross & Glendining held onto the station until 1909, but had been trying to exit without losing too much money since the turn of the century.

Again, the virtue of Doing Well & Doing Good is that it makes clear how an economic concept, in this instance vertical integration, works in practice. Jones shows how the firm repeatedly struggled with how to price the output of constituent parts of the business when transferring goods between each other. A perennial problem was how to price the output of the Roslyn Mills for sale to the warehouses that Ross & Glendining operated around New Zealand. Ross & Glendining did not want to give their own goods an unfair advantage by transferring the goods at cost, so that the warehouses would continue to sell a wide range of imported goods. Being seen as selling primarily ?inferior? New Zealand-made products would be a disadvantage in competition against other textile distribution companies. (One might note here that although parts of Ross & Glendining were in the fashion business, this history rarely touches on the colorful, fashionable side of the story. This is resolutely a history of balance sheets.) Jones suggests in his understated way that internal pricing was an issue the firm never properly resolved.

Controlled by its founders for decades, it was not until 1900 that the firm became a joint stock limited liability company. Yet even after the transition John Ross and Robert Glendining — assisted by their accountant in Dunedin, Charles Hercus — remained tightly in control of the firm. The change in structure was largely nominal, and not substantive. John Ross remained central to the firm?s management until 1922. Robert Glendining retreated from active involvement in the firm as he became senile before his death in 1917. Despite the transition to a limited liability company, on John Ross?s death the firm?s management passed largely to Ross and Glendining?s children. While the firm remained nominally profitable through the Depression, and was boosted by government spending on uniforms in World War II, the rate of return on capital fell steadily. Manufacturing became even more central to the firm when the first Labour government, elected in 1935, imposed strict import controls. As a long-established firm Ross & Glendining was able to obtain import licenses relatively easily. Jones downplays the costs of the import-licensing regime to the firm, and the wider economic distortions they caused. A fillip to demand in the Korean War again boosted Ross & Glendining, but the long-term problems of poor management remained. Jones tells the story of the firm?s decline as one of the second generation being poorer managers than their fathers. Again, Jones makes clear in the particulars a familiar issue in business history, the difficulties faced by a family firm in displacing poorly performing managers who have their surname on the letterhead.

The relevance of this book to a wider audience comes from its effective illustration of common economic and business issues: designing contracts for a dispersed workforce, pricing goods for internal sale, and making the transition from family ownership and control to a joint stock company employing managers who can be fired. Jones makes relatively few explicit connections to the economic history of New Zealand. What can a single firm tell us about a whole economy? Jones shows how Ross & Glendining grew prodigiously in line with growing incomes for the whole New Zealand economy. On the eve of World War I per-capita incomes in New Zealand were among the highest in the world. Operating in a business sensitive to consumer incomes, Ross & Glendining rode the wave of extensive and then intensive growth in the New Zealand economy before World War I. From the 1920s though, the oft-told story of New Zealand’s economy is of decline relative to its peers in North America, western Europe and ?across the ditch? in Australia. Since at least the 1960s there has been a debate in New Zealand about how to make the economy less reliant on simply exporting untransformed agricultural products. For half a century New Zealand has been trying to do better than being good at transforming grass into butter or wool. The importance of ?staples theory? and the ?external balance constraint? in New Zealand economic debate will ring familiar in other countries.? On the face of it the history of Ross & Glendining, an importing company that manufactured for the domestic market only, may seem irrelevant to that debate.? Yet Ross & Glendining tried to create value by manufacturing woolens in New Zealand, rather than shipping textiles abroad. What Doing Well & Doing Good illuminates is the struggle of New Zealand firms to adopt practices and structures that survive the individual management talents of founders, and allow them to add more value. Recent research suggests that the quality of management in New Zealand firms lags compared to management in comparable countries. Poor management acts as a brake on firms growing beyond their family origins. Ross & Glendining was one of the largest firms in the country, but it did well enough with an outdated organizational structure and management dominated by the reprobate children of the founders, that it did not restructure, and was unable to respond to changing conditions in the early 1960s. The eminent New Zealand historian Keith Sinclair suggested in 1950 that New Zealand history required a ?generation of pedants? because there was so much of New Zealand’s history that lay untold by historians. This is still largely true of the country?s business history. Stephen Jones has mined the archival gold of Ross & Glendining?s records to tell its story. He does well and does good himself by going beyond the specific history of this one firm and speaking to larger issues in business and economic history.

Evan Roberts is Assistant Professor of History at the University of Minnesota, and lectured in History at Victoria University of Wellington (New Zealand) from 2007-2010. He has written about the business history of New Zealand (?Don?t Sell Things, Sell Effects,? Business History Review, 77(2): 265-290), and is currently researching living standards in New Zealand since the nineteenth century. Forthcoming work from this project includes Kris Inwood, Les Oxley and Evan Roberts, ?Physical Stature in Nineteenth Century New Zealand: A Preliminary Interpretation? in the Australian Economic History Review.

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