Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses

Published by EH.NET (August 2005)

Danny Miller and Isabel Le Breton-Miller, Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses. Boston: Harvard Business School Press, 2005. x + 309 pp. $29.95 (hardcover), ISBN: 1-59139-415-5.

Reviewed for EH.NET by Jeffrey J. Matthews, School of Business and Leadership, University of Puget Sound

The primary purpose of Managing for the Long Run is to teach business leaders the means for achieving sustained profitability while benefiting “all organizational stakeholders” (p. 7). The authors, Danny Miller, a strategy professor at HEC Montreal, and Isabel Le Breton-Miller, a Human Resources consultant and researcher, have derived their “lessons” after studying the histories of twenty-four family-controlled “great … large, old companies that have achieved market share leadership” (p. 7). Their definition of a family-controlled business (FCB), whether public or private, is one “in which a family controls the largest block of shares or votes and has one or more of its members in key management positions” (p. 2). The two dozen internationally-based FCBs that the authors feature have “vastly outsurvived” and frequently “outperformed” non-family peer companies, but have also been “dismissed” by scholars as viable role models (p. 2).

At a minimum, this book serves as a welcomed reminder that, in an era of accelerating globalism, family-influenced companies continue to play a significant role in the U.S. and world economies. In summarizing related research by scholars such as Herman Simon, Daniel L. McConaughy, Ronald C. Anderson, and many others, the authors emphasize that FCBs constitute more than one-third of the S&P 500 and Fortune 500, employ more than half of the U.S. workforce, and create more than three-quarters of new American jobs. Moreover, these family companies, whether domestic or foreign-based, often dominate market share and generate superior financial returns.

According to Miller and Le Breton-Miller, each of their twenty-four “long-term FCB winners” incorporated into their respective business models four crucial priorities that fostered enduring success (p. 7). These “Four Cs” are Command (i.e., granting senior management considerable decision-making independence), Continuity (i.e., maintaining adherence to a farsighted mission), Community (i.e., developing a unifying company culture with “a deep concern for employees at all levels”) and Connection (i.e., establishing long-lived external relationships with clients and suppliers) (p. 6). Commitment to these four priorities has helped FCBs effectively execute their specifically chosen strategies.

In separate and consecutive chapters, the authors identify and describe five common business strategies (brand building, craftsmanship, superior operations, innovation, and deal making) and link one of them to each of the twenty-four FCBs under review. For example, the Estee Lauder Companies Inc., Hallmark Cards, Inc., S.C. Johnson & Sons, Inc., L.L. Bean, Inc., and Levi Strauss & Co. are all labeled as “Brand Builders,” while Adolph Coors Company, the New York Times Company, Nordstrom, Inc., and the Timken Company are identified as “Craftsmen.” Furthermore, Miller and Le Breton-Miller determine for each strategy which of the “Four Cs” are “major priorities” and which are lesser yet still crucial “complementary priorities” (p. 51).

In the cases of both the brand builders and craftsmen strategies, the authors conclude that Continuity and Community were relatively more important than Connection and Command. By contrast, the innovative strategy, as adopted by Motorola, Inc. and Corning Incorporated, “rely profoundly” on Command and Community, with Continuity and Connection serving as complimentary priorities (p. 136). The top priorities for the superior operations strategy at firms such as IKEA and Tyson Foods were Continuity and Connection, while “deal makers” such as Bombardier Inc. and Bechtel depend more on Command and Continuity. In other words, the authors contend that it is not sufficient for companies, even tremendously successful FCBs, to implement all of the Four Cs. Rather, every company must find “a harmonious configuration” among these priorities; and the optimal configuration depends on a company’s specific strategy (p. 165).

The chapter “When Family-Controlled Firms Stumble” demonstrates that even the best family businesses suffer when they mismanage major or complementary priorities. FCBs might falter from excessiveness, such as giving executives too much independence, or from negligence, allowing priorities such as Community or Continuity to erode. Here negative examples include Levis, Coors, Nordstrom, Tyson, Wal-Mart Stores, Inc, Motorola, Corning, Bechtel Group, Inc., and Olympia & York Developments Ltd.

The book’s final chapter offers detailed recommendations for shareholders, directors, and employees who are interested in adopting “the long run approach” to business leadership. Shareholders, for example, are counseled on the economic and social costs of “short-termism,” while directors are advised to monitor management’s adherence to the proper configuration of the Four Cs (pp. 209, 211).

Managing for the Long Run is a thoughtful study of family-influenced businesses and its practical recommendations should be of value to leaders and managers in a variety of organizations, FCBs or not. Perhaps the most important facet of Miller and Le Breton-Miller’s Four Cs framework is its elasticity. While promoting the idea that all businesses should have certain common priorities, the model also recognizes and indeed requires that every company independently configure those priorities to best match its selected strategy. What works for brand builders like L.L. Bean will not exactly fit innovators such as Tetra Pak AB.

Despite its many positive attributes, the book is not without weaknesses. The authors are clearly enamored with their twenty-four “thriving FCBs” (p. 7). In fact, the first three-quarters of Managing for the Long Run veers toward the type of hagiography that often besets biographies. This impediment is partly overcome in the latter chapter that describes extensive mismanagement at various FCBs; yet problems remain with the book.

Early on, the authors proclaim that their prized companies successfully lead “for the benefit of all organizational stakeholders” and share a “deep concern for employees” (pp. 6-7). But these sweeping statements are hardly convincing if one knows the history of shareholder/management relations with labor and suppliers at Wal-Mart and Tyson (“never ones to coddle their employees”) (p. 193). More importantly, the authors do not, perhaps cannot, demonstrate that the “hardball tactics” used by certain FCBs against labor and suppliers have or ever will derail a “moneymaking machine” like Wal-Mart (pp. 193, 195).

Corning, the historic glass company, and its founding family, the Houghtons, are also given sparing criticism despite the astounding fact that the company’s stock price plummeted from $113 in 2000 to less than $3 in 2002 (leading to thousands of layoffs). The authors are too quick to attribute the downfall to the promotion of two “non-family” CEOs, Roger Ackerman and John Loose, who succeeded Jamie Houghton as CEO in 2000 (pp. 45, 199). This reasoning seems seriously flawed given that Ackerman and Loose were long-time Corning executives who had Houghton’s complete confidence and support. Moreover, after stepping down as CEO, Houghton continued to serve as board chairman, and it was under his governance that Corning overcommitted to telecommunications optical fiber. In short, some of the critiques offered by Miller and Le Breton-Miller are simply inadequate. At the same time, other successful FCBs with somewhat notorious reputations, such as J.R. Simplot Company, are not criticized at all.

On a final point, one might question how unique the Four Cs model is to family-controlled businesses. The authors claim that their great FCBs offer today’s leaders “the promise of a very different way” to govern (p 232). But readers of Managing for the Long Run will be struck both by the numerous and substantive similarities to Jim Collins’ bestselling Good to Great (HarperBusiness, 2001) and by Miller and Le Beton-Miller’s failure to recognize and grapple with the commonalities. So stark are the parallels that three are worth detailing.

First, Collins argues that his eleven “great” companies, including non-FSBs such as Wells Fargo and Philip Morris, strove to hire and retain only the best employees. They got “the right people on the bus (and the wrong people off the bus),” and “when in doubt” over a potential new recruit, they “don’t hire — [they] keep looking” (pp. 41, 54). He states further that the “right people don’t need to be tightly managed or fired up; they will be self-motivated … to produce the best results” and will thrive in a highly disciplined atmosphere of “freedom and responsibility” (pp. 42, 125).

Similarly, Miller and Le Breton-Miller contend that “great” FCBs “recruit the right people, and quickly dismiss those who don’t fit the demanding culture,” and they use “extreme caution in hiring. …The policy is always: If in doubt, say no” (pp. 99, 220). The authors also state that the right employees “can be trusted to do the right thing and be freed to use their initiative” (p. 100).

Second, in Good to Great, Collins opines that the ultimate corporate leaders are most interested in building companies capable of achieving “enduring greatness,” and thus they set up successors “for even greater success in the next generation” (pp. 20, 36). These executives “lead with questions, not answers” and they “focused on those activities that ignited their passion,” while demonstrating a “compelling modesty, shunning public adulation; never boastful” (pp. 74, 96, 36).

In Managing for the Long Run, the authors conclude that top leaders at winning FCBs develop a vital “ability to listen” and “follow [their] passion” (pp. 216, 231). These executives are concerned about the “long-run interests of the firm and its stakeholders” and thus understand the importance of “succession planning” (p. 213). Moreover, “arrogance or smugness were rare among these leaders. And success, for the most part, did not go to their heads” (p. 216).

In a final parallel, Collins routinely emphasizes the need for leaders to shape corporate cultures and construct flat organizational structures. To achieve “superior performance and sustained results,” great companies “avoid bureaucracy and hierarchy and instead create culture of discipline …with an ethic of entrepreneurship” (pp. 121-22). Furthermore, he argues that the best organizations encourage “intense dialogue” and “heated discussions” among executives and managers (p. 77). When mistakes are made, the best leaders are quick to “conduct autopsies, without [assigning] blame” (p. 77). In other words, they create a “climate where the truth is heard” because when making difficult decisions “facts are better than dreams” (pp. 73, 69).

Likewise, Miller and Le Breton-Miller notice that many great FCBs built “flat, informal” organizations with “few levels of hierarchy” (p. 218). The minimization of bureaucracy allowed such large companies “a small-company feel” (p. 218). The authors also conclude: “one of the greatest assets of the FCBs we studied was that managers … could speak frankly with one another. They could be critical and convey bad news, knowing that their jobs would remain secure. Clearly dissenting executives can speak truth to those in power only within a climate of openness and an insistence on fact-based decision making that welcomes questioning and dialogue” (p. 215).

Miller and Le Breton-Miller, like Collins, claim that their prescriptions for enduring organizational success should have widespread application beyond family-controlled businesses. It appears that they are right.

Jeffrey J. Matthews, associate professor and Director of the Business Leadership Program at the University of Puget Sound, is the author of Alanson B. Houghton: Ambassador of the New Era (2004) and “Yankee Enterprise: The Houghtons of Massachusetts and the Rise and Fall of ‘Corning Incorporated,’ 1851-1871,” Essays in Economic and Business History 20 (Spring 2002): 127-43.