Understanding the Strategies and Dynamics of Long-lived Family Firms

Philip Scranton Rutgers University, Camden

If a handfulof recentindicators are harbingers of a trend,familyfirms are back in business as a focusof academic interest.A practiceand policy journal commenced publication in the late 1980s,severaluniversity-based entrepreneurialcentershave taken specialinterest in family firms, and consultants offeringexpertise in family dynamics havesurfaced across the nation. The Britishjournal,Business History,is devoting a special issue next year to familyfirms in several countries, and an international workinggroup headed by DavidJeremy is considering familycompanies aselements in its comparisons of regional industrial restructuring. Whileit is doubtful thatsuch enterprises will ever againplay the sizablerole they held in the early and middle stages ofAmerican business development (roughly through WorldWar One), the perception of themasinherently inefficient or indeed pathological seems to be receding [5, 7, 16]. Thisshiftmayin part be dueto the growing recognition that principles and practices of generalmanagement are not universally effective and that the personalism whichfamilycompanies often foster has value in buildingand conserving firm-specific capacities for

innovation andresilience in crises? Thisfeature caneasily beoveremphasized

or romanticized, to be sure,but in an environment of executive job-hopping and"vulture" entrepreneurialism, thelongtermcommitments thatfamilyfirms featureseemto haverenewed appeal [3]. Thispaperisa preliminary attempt to conceptualize several dimensions of family firm strategies in Americanmanufacturing across the century following the Civil War, focusing on long-lived companies that completed generational transitions andremainedactivefor fifty or more years. Though succession issues havedominated recent policy discussions, it isalsoimportant to consider howfamilyfirmsmanage expansion, howtheydealwith changing technical and marketconditions, and how theyuse organizational assets to benefitkin-group members.This thematic quartetthusincludes two points onwhichsuch companies overlap withstandard managerialist enterprises and

IResearch onfamily business is also developing from another perspective, thatof social
historians concerned with reconstituting familylife-paths andstrategies, for whichsee[1].

BUSINESSAND ECONOMIC HISTORY, Second Series, Volume Twenty-one, 1992.

Copyright (c) 1992by the Business HistoryConference. ISSN 0849-6825.
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twothat are germane onlyto theirparticular format. Though the cases used here asraw materialall derivefrom industrial settings, it is possible that this topical arrayandthevarious practices discussed undereach heading could be foundconsistent withfamilyfirm dynamics in construction, finance, or other sectors, were researchers movedto undertake suchinquiries. The materialson whichthis effort is basedin no way derivefrom a systematic sampling of familyenterprises, a caveat thatmust be stressed at the outset. Instead, the dozen firms represented are largely drawn from my libraryand archival work on batchmanufacturers, with onemass production companyincludedfor contrast. They include Connecticut's Bridgeport Machine Tool, Philadelphia's Bromley, Doak,Schofield, andDobson textile firms,the GlobeDye WorksandDisston Saw,Camden's Campbell Soup, the Textile Machine Works in Reading, Wilmington'sPusey and Jones, a machinery and shipbuilding firm, and the John Widdicomband Herman Miller companies, GrandRapids furniture makers. Withtwoexceptions these are mid-Atlantic firms, and with another exception,all derive from Anglo-American ethnic roots, leavingspacefor further explorations of regional andethnic variations. Hence,thispaperisbothlimitedandtentative, more a sketch of possibilities than a firm agenda.Theseboundaries noted, let us proceed to examine strategies for growth,response to technical and marketchange, kin provision, and succession, respectively. In general, whenultimately-durable familyfirmsbegin to expand, they manifest needs for capital, credit,and managers whichare more difficultto resolve thanhiringadditional workers.Capitalideally could be drafted from kinsmen, but in noneof the cases reviewed herewasthissignificant. Instead, funds for expansion camefromharbored surpluses thatwerethe counterpart to initiallymodestself-payments by company founders, supplemented by mortgages onnewfactory buildings secured through localf'mancial institutions after carefulscrutiny of firms' accounts, by floatingand renewing personal notes,and by negotiating long creditsfrom machinery suppliers. These facilities depended critically on reputation and trade contacts, rathermore than on a Dun'srating,I suspect.For example, Pusey and Jones expanded facilities between1870and 1873,increasing its mortgage and personal bonds outstanding from $20,000 to $89,000 in the process. When several note-holders demanded full payment the following year,P&J wasunable to comply, the notes wereprotested, yet the senior partner's brotherandthe firm's lawyerstepped in with bridgeloansto forestallreceivership or liquidation. At the Textile MachineWorks, partnersHenry Thun and Friedrich Janssen reliedon a Reading bankfor a seriesof quickly-retired mortgages when they doubled and redoubled their manufacturing space shortly after1900, butthenotably erratic John Widdicomb, whohadsplitoff his firm from the original familyfurniturebusiness, wasin thosesameyears affordedno suchhelp. Instead,he borrowedtensof thousands from a New York mirrorimporter, oneof hissuppliers, anda NewYork furniture retailer, oneof hislargest customers, soasto increase capacity, andfollowed upwith scores of letters appealing for extensions andfurther funds (withconsiderable

effect) [10,17,19]. Through WorldWar Twononeof thecompanies issued

stockas a meansto raise capital,thoughboth TMW and Campbell,once

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solidlyestablished, did market corporatebondssuccessfully [11, 17]. Such capital-raising strategies carriedshort-to medium-term risks which weremore palatableto family firm membersthan transferring shares of ownership to unknown outsiders through marketmechanisms. Fillingthemanagerial posts thatexpansion created wassimple for those postbellum companies that had male kinsmento drawupon.Henry Disston broughtin his four brothersashis sawenterprise grew,and EdwardBullard engaged two nephews to run Bridgeport Tool'sNew York sales officewhile he oversaw production at the plant. So too did SevillSchofield and James Dobson employ brothers, cousinsand nephews. As his son was nearing adulthood when he struck out on his own, John Widdicomb commissioned him to buy timber tracts to assurehardwoodsuppliesand manage their exploitation.Yet not all proprietors had theseoptions, dueto the absence or unreliability of their malerelatives [6, 14, 16, 19]. In sales, thisproblemcouldbe messed by working through agents and roadmen, but at the enlarging plant,directhelphad to be located.Thunand Janssenused the labor market route, as did John Dotrance at Campbell, simply hiringexecutives, firingthe ineffectual andrewarding the skilled with bonuses, or in somecases, a profit percentage, so as to cementties for the longerhaul. A second path waschartedat Puseyand Jones, whoseowners seducedThomas Savery from a shop superintendent's position with the Pennsylvania Railroad's prestigious Altoonaworks by an offerof advanced pay and the chance to rejoin his extended Quaker family networks near Philadelphia. When, aftertwo months, Savery gavein hisnotice,as a sweeter bid had comehis way,the seniorpartners matched it and pledged to provide him a fortieth sharein annualprofitsand to openthe way to a partnership within three years. This strategy provedprescient, for later the sameyear, the Cambria Iron Workscourted Savery by dangling an assistant plantmanager's position at double hisP&J salary. Contrasting hisanticipated ownership position at the Wilmington machinery workswith the prospect of beinga seniormanager at Cambria, he chose proprietorshipand turned down the offer without mentioning it to his colleagues.Within eighteen months, arrangements were completed for ThomasSaveryto becomea one-fifthpartner at Puseyand Jones,with most of the $54,000 price to be deductedfrom his future partnership earnings.He remainedwith P&J for the balanceof his career,

andbuiltitstradewithhistechnical ingenuity (accumulating a dozen patents) and ability to quote machineryprices that built in comfortableprofit margins.: Family firms'addition of partners wasnot uncommon, andcould be a capital-raising device (the "sleeping" partner, excluded from management), but rarely are the dynamics of the processas closely documented as in this case[10].

2p&jmade both Savery's patented machines and a variety of specials constructed touser's
specifications, alongwith coastal ships, withwhichhe hadlittle to do, andbelow-cost quotes for which(presumably madeby otherpartners) he notedrepeatedly andpointedly in hisjournals.

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The third meansto bringin managers alsohad longterm connections at its center,andwasclosely linkedto succession. Here proprietary fathers

(or brothers) brought theirdaughters' (or sisters') husbands into the firm. Thiswasroutine in Philadelphia textiles, andhappened at theTextileMachine Worksand Campbell aswell, but directinsights into the intricacies of these relationships cannot be drawnfrom the sources I havethusfar encountered. As this maneuver breaksfrom the male-gendering of power and decision makingso common amongfamilyfirmsin this era, it mattersa great deal when,how, and whethermen in essence arranged strategic marriages, were active but not determinant influences on women's choices, or wereperipheral to the process of mate-selection, expected instead to find a placeat the firm for the incomer.It ismostlikelythediaries andcorrespondence of daughters, ratherthanfirm records, thatwill illuminate these gender dynamics andsuch shifts in expectations and practice as accompanied widerpatterns of cultural and socialchange. In the category of response to technical and market changes, unlike expansion, thereseems to be no striking difference between the behavior of familyand managerial firms. To be sure,a numberof the companies here considered demonstrated genuineadroitness and decisiveness, but others became miredin static product classes andgradually losttheirvitality, just as "professionally" managed firmsregularly did. Certainly, familyfirms'typically flat administrative hierarchies couldallow for quickshiftsin productmix, location, or marketing strategy,but also facilitated foolish ones. The Bromleyscan be featuredat both ends of the spectrum. This clan of Philadelphia carpet manufacturers twicemoved aggressively to invest in new productlines and technologies, lace-making in the 1890sand full-fashioned silk hosieryknittingjust after World War One, reapingmillionsfor their cutting-edge venturing. Yet in the 1930s, the familysought to achieve scale comparable to the hosiery industry's threebiggest firmsby acquiring regional
mills and startinga new one in the South,sidetracking a nascentinvestment in knittedouterwear.Their bet waswrong,asthe hosiery enterprises faltered badlyevenasknit sweaters andaccessories became a substantial growth pole JUl. Savery's entryat Pusey and Joneshelpedfocustheir energies by the 1880s on production of Fourdrinier papermachines, neatlyintersecting the riseof mass circulation newspapers, magazines andcheap books andadvances in woodpulptechnologies, andhence, demand for paper-making equipment. In time,Savery andhispartners startedtheir ownpulpmillsto implementhis designfor a patentedwood grinder and profit from burgeoning materials demand. Textile MachineWorks similarlyboth promotedand testedits innovative braidersby settingup a braid-twisting factoryadjacentto its metalworking shops, and repeatedthe patterna decade later when the firm commenced building full-fashioned hosiery machines. The second follow-through mill becameboth a laboratory for design improvements and, whenthe silk hosiery crazehit full stridein the 1920s, one of the sectoral giantsthe Bromleys'choseto challenge. The DePrees at Herman Miller anticipatedthe shift from wood to metal in upmarket office furniture, reorienting their production facilitiesand bringingon board three leading

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modernist designers in the 1930s and40s,leading the restructuring of Grand Rapids'regionalfocusfrom household to business furnishings. On the mass production side,oncein full command at Campbell,Dorrancedroppedthe firm's diversifiedcanninglines for a singularfocus on condensed soups, successfully harnessing nascent "convenience" demand in its earliest stages [2, 10, 11, 171. Yet everysagaof innovative practice hasa stagnant counterpart. The Doaks,Dobsons, andSchofields all heldfastto their woolen yarn andfabrics outputswhile supplyprice rigiditiesand incursions by substitutes thinned marketsin the 1920s. The Disstons'missedevery hint that a market in household, farm,andconstruction sitepowertoolsawaited development; and a disastrous, catch*up, portablechain saw venturemired the firm in debt, triggeringthe loss of family control. Such inattentionto shiftingcontexts seems little differentthanbigsteel's overlong commitment to the openhearth or Detroit'slove affair with gas-guzzlers. Thesefamilyfirm stumbles only suggest that across differentorganizational forms,there may be featuresof institutional culture that set impermeable boundaries to corporate imaginations, a matterthat maymerit more systematic study[8, 12, 16, 18]. Long-lived familyfirmsoftenhaveto contend withfelt needs to employ corporate proceeds to provide for an extended familyincreasingly populated bynon-producers, most particularly women excluded fromactive participation but alsosecond or third generation men likewiseoutside the firm. The line of tensionhere runs betweensupportand dependency on one hand and ownershipsharesand "interference" on the other. The experience of four firms can illustratesix waysin whichthis challenge was addressed, well or badly. Beforemostfamilyfirmsincorporated, provision for kin,if attempted at all, restedon a familypact,eitherinformalor contractual. The Schofields and Disstonsexemplifythe two variations. As testimonyduring its turn-of-the-century bankruptcy andreorganization revealed, SevillSchofield's kinswomen received annualgiftsfrom the proprietary surplus followingthe yearly settling-up,the amounts being evidentlysizable but unstated. Reciprocally, these women, including Schofield's wife,wereexpected to amass savings fundsthat couldbe borrowed by the firm should theybe needed for working capital. Losses late in the 1890s depression trimmedsuch payments to tokenstatus, evenasSchofield failedto payinterest on,muchless redeem, familynotes. Their protests to his brother-in-law, JamesDobson,who also held past-duenotes on the firm, led the latter to force the firm into receivership so that managementcould be shifted to the founder'ssons. Dobsonsquared the obligations to kinswomen, and the sons ran the firm for the next 40 years,for Sevill'swelching on unwrittendutiesto kin had precipitated his displacement [12]. By contrast, Henry Disstondevised a scheme of life partnerships to providefor his incoming brothers' familieswithoutdilutinghis ownership or undermining succession to his ownsons. On entering the firm eachof the brothers wasmadea "subpartner" withoutexpectation of capitalcontribution,

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entitled for life to a share in such dividends asHenrychose to declare2On eachbrother's death,the firm "repurchased" the subpartnership by paying his
widowor family a lump sum,the last of whichwas disbursed in 1899,some 21 yearsafter the founder'sown demise. This contractual form of profit sharing and life insurance affirmed familybonds, conserved the authority of the founder andhissons, andpermitted the selective inclusion of promising nephews in the second generation's management team.Perhaps thisnoveland effective meansof governing the firm/family boundary was uniquein the pre-corporate era,but onemightsuspect it drewonAnglo-American business customs familiarto the immigrant Disston [16]. Incorporation, whichoftenwas doneto handlekin provision at the founder's death,broughtthe creation and distribution of shares.At Disston, thiscamein 1886,after seven yearsspentuntangling Henry'ssloppy finances. His widowreceived 20 percentof the shares, the three sonsa clearmajority, with a residual24 percentdelivered to 20 other family members,chiefly womenand grandchildren. Custom wasthat the working familymembers determinedpolicyand the othersassented, an unproblematic arrangement
until dividend failures after World War II threatened the incomes of thirteen

femaleDisston descendents holding 42 percent of the stock. Their revoltat a Schofield-like breach of trustin kin provision facilitated a 1955takeover by conglomerator Samuel M. Evansthatended familycontrol. A generation after Disston's incorporation, Thun and Janssen took a differentroute, sharing Textile MachineWorks enormous success with sisters and daughters through the deviceof creating$2 million in 5% preferredshares. This skillful stratagem wassucceeded by anotherin the 1920s, asthe agingfounders each createdstocktrustsfor holdings in other firmsboughteither on company account or withtheirprivate resources. On theirdeaths, theirshares of TMW wentintothe trusts to be managed by professionals for the heirsbenefit, but

withouttheir input. 4 When TMW and its associated companies ceased

producing machinery and fabricsin the 1960s,the financialstrength of the familytrustswaslittle affected[16, 17]. Campbell's JohnDorrancehad a differentproblem. As the masterof a national-scale throughput giant, he disdained much of the managerial catechism andsetup hisestate soasto preserve hiseffective control overthe firm from beyond the grave. At his deathin the late 1920s, his holdings of Campbell stock wentinto a set of trustsreserved for his children, then all minors, truststhat wouldbe dissolved, freeingthe shares, only upontheir

later, sequential demises.The trustees turnedthe soupcompany into a propermanagerial enterprise; familymembers enjoyed ampleincomes, but

3Brothers' dividend shares ranged from $400 to$3000 annually in thelater 1870s and 1880s.
Henry was cautious, not cheap.

4Neither hadsons, butan incomer son-in-law handled company finances andlegal affairs
alongside veteranmanagers with smallshareholdings.

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nonehad a signal role in policy makingoverthe ensuing 50 years. Recently, third andfourthgeneration heirssquabbled in publicoverwhether to selloff and diversifytheir multi-billiondollar portfolioswhen Campbell earnings stumbled, but freshexecutive leadership restored healthyprofitability despite thegathering recession, staving off thedissolution of familyownership, at least for now [11]. At a minimum,thesecases suggest that classic devices of business practice- contracts, shares,or trusts- were employed by family enterprises to provide for kin andprotectthemandthe firm in ways broadly different than would be expectedat managerialoperations. Only more intensiveresearchwill indicatewhether suchstrategies servedto impede companydevelopment or established reliable boundariesthat protected enterprise activists from distracting interference.

Succession isthemost widely-discussed feature of family companies'

strategicchallenges. Here, for economy's sake, only one elementin this complexprocess will be treated: trainingand preparationfor succession. Like kin provision, the trainingof successors for activemanagement has changed gradually overthe lastcentury. For at leasta generation after 1850, it was routinefor sonsto enter apprenticeship in the founder's craft, as at Disston, learningthe trade in the shops for four to sixyears, thenworkingas a regular journeyman for a periodbeforebeing"elevated" to partnership. By the turn of the century, thismutatedinto the "manufacturing apprenticeship," whichmeanta brieferrotationthrough the various departments of the firm followingcompletionof commercial or high schooleducation, the course followed by Charles Doak at Philadelphia's Standard WorstedMills [13, 16]. An alternative to this scheme, one pursued by ThomasSaver)es son, wasenrollment in a college engineering course thatfeaturedshoptraining(in this casethe SibleySchoolat Cornell),leadingto supervisory postsat the

home siteaftergraduation. Collegiate business education at thesame time

waslessattractive, notbeing"practical", i.e.,sectorally relevant, instruction, as even sponsor Joseph Wharton averred in his repeated bouts with Pennsylvania's faculty. With the definition and promotion of "general management" principles, c. 1910-30, suchresistance wasgradually overcome; yet of five Bromleyheirs attending collegein thesedecades, only one went through Wharton,with the rest shipped off to the older Ivies or Williams more for polishthan practicality, very much like the Dorrances'elder son (Princeton) [9, 10, 12, 20]. This sixty-year transition towardformaleducation, andcurricular shifts from shop practicetoward textbookprinciples, left a real gap in the training-for-succession program at family firms.Inexorably, potential company leadersknew lessand lessof the life of the factoryfloor. No heir sent to

5This track was sharply limited bythe metalworking focus ofmost early engineering education.
Lathe andgrinderworkwasof little directrelevance for the sonsof furniture,shoe,publishing, or textilecompany proprietors. Specialized trade schools in textilesdid enrol owners'sonsas an alternative (or supplement) to college attendance, andsimilarprintingschools mayalsohave
done so.

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learningproduction waseasilyintegrated into a work team,but the common or highschool graduate wasa morelikelyshop learnerthanthe Yale alumnus or Cornell engineer. After 1918,no sonsamongfirms surveyed here were rammedinto overalls at Dad's company.Instead,three options other than simplydrawingdividends took shape. First, college-or technically-trained sonsbecame"instant" managers, in the officeor in production planning or qualitycontrol, depending on theirbackgrounds. Second, sons werepressed to seek initial job placementsat firms other than the family business, sectorally in production or salesor indeed,as at the Globe Dye Works, in entirelydifferentfields. On thismodel,eithervaluableexperience couldbe gathered withoutpotentially disrupting the core operationor alternatives to the family business couldbe tried out by the next generation, with fathers covertly hoping that a returnto the fold mightfollowin due time. 6 Third, andunique to theBromley clanin thisgroup, prospective successors mightbe set up in separate businesses on their own account, in substance an exercise in sponsored entrepreneurship whose outcomewould powerfullyindicate capacities for succession at the corefirm(s). This cluster of strategies for preparing the generational transition surely doesnot exhaust all possibilities, but it suggests the diversemeansthroughwhich manufacturing families contended withinstitutional changes andoperating necessities whilefacing the enduring problemof constituting ablesuccessors [4, 11]. The conjectures whichabound in thispaperareterriblyfragile,for they arebased on scattered documentation for a tinygroup of durable companies, not on an in-depthstudyof hundreds of suchenterprises.Were suchan inquiry mounted (andappropriately well-funded) it might wellhelpsatisfy the needfor multiple,conceptually precise casestudies of familyfirms that could help us determine: 1) to what extentand in what waysfamily companies

actualize strategies significantly different frommanagerial businesses; 2) how andwhyfamilyfirmsselectively appropriate management innovations; and3) whatbusiness environments proveconjuncturally bestsituated for familyfirm accumulation as againsta managerialist format, againwhy, and how such advantages are erodedor elaborated. If this paper can serveto stimulate initiatives alongthoselines,its purpose will havebeen achieved.
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Melanie Archer, "Family Enterprisein an Industrial City.

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Harry Levison, TheGreatJackass Fallacy(Cambridge, MA, 1973). Irwin Robinson, Yankee Toolmaker (Bridgeport, c-'r, 1955).

6Of course, fears that anill-suited son might return toseek his rightful place near the top surely
accompanied suchplacementS.

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MaDr Rose, NBeyond Buddenbrooks, N Discussion Paper ECA/91, LancasterUniversity ManagementSchool,UK, 1991. Emma Rothschild, Paradise Lost(New York, 1973). StevenSass, .4 Pragmatic Imagination (Philadelphia, 1982). ThomasSaveDr Collection, Archives, HagleyMuseumand LibraDr. PhilipScranton, NBuild a Firm,StartAnother,"unpublished paperpresented at Manchester Polytechnic, UK, September1991. , FiguredTapestry (New York, 1989). , 'Learning Manufacture: Shop-Floor Schooling and the Family Firm, Technology and Culture,27 (1986).

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