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.
219

the Textile Machine Works in Reading.Schofield.Capitalideally could be drafted from kinsmen. Doak.Theseboundaries noted. by floatingand renewing personal notes.thoughboth TMW and Campbell. the dozen firms represented are largely drawn from my libraryand archival work on batchmanufacturers.increasing its mortgage and personal bonds outstanding from $20. anda NewYork furniture retailer. Philadelphia's Bromley.I suspect. The materialson whichthis effort is basedin no way derivefrom a systematic sampling of familyenterprises. kin provision. more a sketch of possibilities than a firm agenda. butthenotably erratic John Widdicomb.000 to $89. it is possible that this topical arrayandthevarious practices discussed undereach heading could be foundconsistent withfamilyfirm dynamics in construction. Pusey and Jones expanded facilities between1870and 1873. credit. Instead.response to technical and marketchange. with onemass production companyincludedfor contrast. whenultimately-durable familyfirmsbegin to expand.P&J wasunable to comply.220 twothat are germane onlyto theirparticular format.and by negotiating long creditsfrom machinery suppliers. and with another exception.Camden's Campbell Soup. These facilities depended critically on reputation and trade contacts. Withtwoexceptions these are mid-Atlantic firms. Wilmington'sPusey and Jones. oneof hissuppliers. andfollowed upwith scores of letters appealing for extensions andfurther funds (withconsiderable effect) [10. GrandRapids furniture makers.For example.the GlobeDye WorksandDisston Saw. Through WorldWar Twononeof thecompanies issued stockas a meansto raise capital. finance. Instead. wasin thosesameyears affordedno suchhelp. whohadsplitoff his firm from the original familyfurniturebusiness. leavingspacefor further explorations of regional andethnic variations. the notes wereprotested. They include Connecticut's Bridgeport Machine Tool.he borrowedtensof thousands from a New York mirrorimporter. rathermore than on a Dun'srating.and managers whichare more difficultto resolve thanhiringadditional workers.once .17. yet the senior partner's brotherandthe firm's lawyerstepped in with bridgeloansto forestallreceivership or liquidation. Hence. In general. oneof hislargest customers. a caveat thatmust be stressed at the outset. 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. andDobson textile firms.all derive from Anglo-American ethnic roots. soasto increase capacity. were researchers movedto undertake suchinquiries. a machinery and shipbuilding firm. When several note-holders demanded full payment the following year.thispaperisbothlimitedandtentative. At the Textile MachineWorks. Though the cases used here asraw materialall derivefrom industrial settings. partnersHenry Thun and Friedrich Janssen reliedon a Reading bankfor a seriesof quickly-retired mortgages when they doubled and redoubled their manufacturing space shortly after1900.000 in the process. they manifest needs for capital. respectively. and succession. and the John Widdicomband Herman Miller companies. let us proceed to examine strategies for growth. but in noneof the cases reviewed herewasthissignificant. Instead. or other sectors.19].

John Widdicomb commissioned him to buy timber tracts to assurehardwoodsuppliesand manage their exploitation. withwhichhe hadlittle to do. did market corporatebondssuccessfully [11. but at the enlarging plant. 2p&jmade both Savery's patented machines and a variety of specials constructed touser's specifications. andcould be a capital-raising device (the "sleeping" partner. simply hiringexecutives. aftertwo months. for later the sameyear. .: Family firms'addition of partners wasnot uncommon. but rarely are the dynamics of the processas closely documented as in this case[10]. When. firingthe ineffectual andrewarding the skilled with bonuses. arrangements were completed for ThomasSaveryto becomea one-fifthpartner at Puseyand Jones. So too did SevillSchofield and James Dobson employ brothers. This strategy provedprescient. thisproblemcouldbe œmessed by working through agents and roadmen. 19].and EdwardBullard engaged two nephews to run Bridgeport Tool'sNew York sales officewhile he oversaw production at the plant. Contrasting hisanticipated ownership position at the Wilmington machinery workswith the prospect of beinga seniormanager at Cambria.the seniorpartners matched it and pledged to provide him a fortieth sharein annualprofitsand to openthe way to a partnership within three years. or in somecases.with most of the $54.Henry Disston broughtin his four brothersashis sawenterprise grew. as did John Dotrance at Campbell. he chose proprietorshipand turned down the offer without mentioning it to his colleagues. the Cambria Iron Workscourted Savery by dangling an assistant plantmanager's position at double hisP&J salary.He remainedwith P&J for the balanceof his career. cousinsand nephews. dueto the absence or unreliability of their malerelatives [6.Thunand Janssenused the labor market route. a profit percentage. Such capital-raising strategies carriedshort-to medium-term risks which weremore palatableto family firm membersthan transferring shares of ownership to unknown outsiders through marketmechanisms. As his son was nearing adulthood when he struck out on his own. 14.221 solidlyestablished.directhelphad to be located. 17]. excluded from management). Fillingthemanagerial posts thatexpansion created wassimple for those postbellum companies that had male kinsmento drawupon. so as to cementties for the longerhaul.Yet not all proprietors had theseoptions. 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. andbelow-cost quotes for which(presumably madeby otherpartners) he notedrepeatedly andpointedly in hisjournals. Savery gavein hisnotice.as a sweeter bid had comehis way. alongwith coastal ships. 16.000 price to be deductedfrom his future partnership earnings. A second path waschartedat Puseyand Jones. andbuiltitstradewithhistechnical ingenuity (accumulating a dozen patents) and ability to quote machineryprices that built in comfortableprofit margins.Within eighteen months. In sales.

lace-making in the 1890sand full-fashioned silk hosieryknittingjust after World War One. Savery's entryat Pusey and Joneshelpedfocustheir energies by the 1880s on production of Fourdrinier papermachines.Savery andhispartners startedtheir ownpulpmillsto implementhis designfor a patentedwood grinder and profit from burgeoning materials demand. andhence. but directinsights into the intricacies of these relationships cannot be drawnfrom the sources I havethusfar encountered. familyfirms'typically flat administrative hierarchies couldallow for quickshiftsin productmix.222 The third meansto bringin managers alsohad longterm connections at its center. Textile MachineWorks similarlyboth promotedand testedits innovative braidersby settingup a braid-twisting factoryadjacentto its metalworking shops.asthe hosiery enterprises faltered badlyevenasknit sweaters andaccessories became a substantial growth pole JUl. and repeatedthe patterna decade later when the firm commenced building full-fashioned hosiery machines. neatlyintersecting the riseof mass circulation newspapers. or wereperipheral to the process of mate-selection. or marketing strategy. The DePrees at Herman Miller anticipatedthe shift from wood to metal in upmarket office furniture.Their bet waswrong. whenthe silk hosiery crazehit full stridein the 1920s. The second follow-through mill becameboth a laboratory for design improvements and. expected instead to find a placeat the firm for the incomer. were active but not determinant influences on women's choices. In the category of response to technical and market changes. Certainly. and whethermen in essence arranged strategic marriages. demand for paper-making equipment. the familysought to achieve scale comparable to the hosiery industry's threebiggest firmsby acquiring regional mills and startinga new one in the South. unlike expansion. reapingmillionsfor their cutting-edge venturing. one of the sectoral giantsthe Bromleys'choseto challenge. As this maneuver breaksfrom the male-gendering of power and decision makingso common amongfamilyfirmsin this era. thatwill illuminate these gender dynamics andsuch shifts in expectations and practice as accompanied widerpatterns of cultural and socialchange. This clan of Philadelphia carpet manufacturers twicemoved aggressively to invest in new productlines and technologies. To be sure. location. Here proprietary fathers (or brothers) brought theirdaughters' (or sisters') husbands into the firm. but others became miredin static product classes andgradually losttheirvitality. just as "professionally" managed firmsregularly did. Yet in the 1930s. magazines andcheap books andadvances in woodpulptechnologies.sidetracking a nascentinvestment in knittedouterwear. andhappened at theTextileMachine Worksand Campbell aswell. In time. Thiswasroutine in Philadelphia textiles. it mattersa great deal when.It ismostlikelythediaries andcorrespondence of daughters. reorienting their production facilitiesand bringingon board three leading . thereseems to be no striking difference between the behavior of familyand managerial firms.a numberof the companies here considered demonstrated genuineadroitness and decisiveness. The Bromleyscan be featuredat both ends of the spectrum.andwasclosely linkedto succession. ratherthanfirm records.how.but also facilitated foolish ones.

The line of tensionhere runs betweensupportand dependency on one hand and ownershipsharesand "interference" on the other. 10.andconstruction sitepowertoolsawaited development. andSchofields all heldfastto their woolen yarn andfabrics outputswhile supplyprice rigiditiesand incursions by substitutes thinned marketsin the 1920s. . catch*up. Reciprocally. On entering the firm eachof the brothers wasmadea "subpartner" withoutexpectation of capitalcontribution. Long-lived familyfirmsoftenhaveto contend withfelt needs to employ corporate proceeds to provide for an extended familyincreasingly populated bynon-producers.the amounts being evidentlysizable but unstated. triggeringthe loss of family control. including Schofield's wife. Such inattentionto shiftingcontexts seems little differentthanbigsteel's overlong commitment to the openhearth or Detroit'slove affair with gas-guzzlers. portablechain saw venturemired the firm in debt. On the mass production side. Henry Disstondevised a scheme of life partnerships to providefor his incoming brothers' familieswithoutdilutinghis ownership or undermining succession to his ownsons. Thesefamilyfirm stumbles only suggest that across differentorganizational forms.wereexpected to amass savings fundsthat couldbe borrowed by the firm should theybe needed for working capital.if attempted at all. The experience of four firms can illustratesix waysin whichthis challenge was addressed. well or badly.Dobsons. Beforemostfamilyfirmsincorporated. 12. successfully harnessing nascent "convenience" demand in its earliest stages [2. 18]. and the sons ran the firm for the next 40 years. farm. most particularly women excluded fromactive participation but alsosecond or third generation men likewiseoutside the firm. familynotes.for Sevill'swelching on unwrittendutiesto kin had precipitated his displacement [12]. Their protests to his brother-in-law. led the latter to force the firm into receivership so that managementcould be shifted to the founder'ssons. The Doaks.eitherinformalor contractual.oncein full command at Campbell. The Schofields and Disstonsexemplifythe two variations. As testimonyduring its turn-of-the-century bankruptcy andreorganization revealed. 16. Dobsonsquared the obligations to kinswomen. 11. 171. JamesDobson.leading the restructuring of Grand Rapids'regionalfocusfrom household to business furnishings. By contrast.Dorrancedroppedthe firm's diversifiedcanninglines for a singularfocus on condensed soups.who also held past-duenotes on the firm.muchless redeem. provision for kin. these women. SevillSchofield's kinswomen received annualgiftsfrom the proprietary surplus followingthe yearly settling-up. Yet everysagaof innovative practice hasa stagnant counterpart. evenasSchofield failedto payinterest on.223 modernist designers in the 1930s and40s.there may be featuresof institutional culture that set impermeable boundaries to corporate imaginations. The Disstons'missedevery hint that a market in household. and a disastrous. a matterthat maymerit more systematic study[8. Losses late in the 1890s depression trimmedsuch payments to tokenstatus. restedon a familypact.

conserved the authority of the founder andhissons.224 entitled for life to a share in such dividends asHenrychose to declare2On eachbrother's death. theirshares of TMW wentintothe trusts to be managed by professionals for the heirsbenefit. andpermitted the selective inclusion of promising nephews in the second generation's management team. Their revoltat a Schofield-like breach of trustin kin provision facilitated a 1955takeover by conglomerator Samuel M. only upontheir later. This contractual form of profit sharing and life insurance affirmed familybonds. thiscamein 1886.At Disston. but withouttheir input. On theirdeaths. Evansthatended familycontrol. Custom wasthat the working familymembers determinedpolicyand the othersassented. not cheap. 4 When TMW and its associated companies ceased producing machinery and fabricsin the 1960s.broughtthe creation and distribution of shares.the last of whichwas disbursed in 1899. Campbell's JohnDorrancehad a differentproblem. Thun and Janssen took a differentroute.but onemightsuspect it drewonAnglo-American business customs familiarto the immigrant Disston [16]. his holdings of Campbell stock wentinto a set of trustsreserved for his children. sequential demises. His widowreceived 20 percentof the shares. As the masterof a national-scale throughput giant. familymembers enjoyed ampleincomes. whichoftenwas doneto handlekin provision at the founder's death. A generation after Disston's incorporation.the firm "repurchased" the subpartnership by paying his widowor family a lump sum. he disdained much of the managerial catechism andsetup hisestate soasto preserve hiseffective control overthe firm from beyond the grave.chiefly womenand grandchildren. Henry was cautious. truststhat wouldbe dissolved. At his deathin the late 1920s. an unproblematic arrangement until dividend failures after World War II threatened the incomes of thirteen femaleDisston descendents holding 42 percent of the stock. sharing Textile MachineWorks enormous success with sisters and daughters through the deviceof creating$2 million in 5% preferredshares. asthe agingfounders each createdstocktrustsfor holdings in other firmsboughteither on company account or withtheirprivate resources. butan incomer son-in-law handled company finances andlegal affairs alongside veteranmanagers with smallshareholdings. then all minors. . the three sonsa clearmajority. but 3Brothers' dividend shares ranged from $400 to$3000 annually in thelater 1870s and 1880s. 17]. This skillful stratagem wassucceeded by anotherin the 1920s. with a residual24 percentdelivered to 20 other family members.The trustees turnedthe soupcompany into a propermanagerial enterprise.the financialstrength of the familytrustswaslittle affected[16.Perhaps thisnoveland effective meansof governing the firm/family boundary was uniquein the pre-corporate era.after seven yearsspentuntangling Henry'ssloppy finances. Incorporation. 4Neither hadsons.some 21 yearsafter the founder'sown demise. freeingthe shares.

only one elementin this complexprocess will be treated: trainingand preparationfor succession. notbeing"practical". one pursued by ThomasSaver)es son. at least for now [11]. No heir sent to 5This track was sharply limited bythe metalworking focus ofmost early engineering education. i. .were employed by family enterprises to provide for kin andprotectthemandthe firm in ways broadly different than would be expectedat managerialoperations. instruction. very much like the Dorrances'elder son (Princeton) [9. Only more intensiveresearchwill indicatewhether suchstrategies servedto impede companydevelopment or established reliable boundariesthat protected enterprise activists from distracting interference. c. for economy's sake. For at leasta generation after 1850. With the definition and promotion of "general management" principles.leadingto supervisory postsat the home siteaftergraduation.e. only one went through Wharton. yet of five Bromleyheirs attending collegein thesedecades. andsimilarprintingschools mayalsohave done so. as at Disston. learningthe trade in the shops for four to sixyears. andcurricular shifts from shop practicetoward textbookprinciples. it was routinefor sonsto enter apprenticeship in the founder's craft. By the turn of the century. Lathe andgrinderworkwasof little directrelevance for the sonsof furniture. 1910-30.Inexorably.publishing. Like kin provision. left a real gap in the training-for-succession program at family firms. 12.. suchresistance wasgradually overcome.shoe. thismutatedinto the "manufacturing apprenticeship. third andfourthgeneration heirssquabbled in publicoverwhether to selloff and diversifytheir multi-billiondollar portfolioswhen Campbell earnings stumbled. 20].225 nonehad a signal role in policy makingoverthe ensuing 50 years. An alternative to this scheme. Specialized trade schools in textilesdid enrol owners'sonsas an alternative (or supplement) to college attendance. the course followed by Charles Doak at Philadelphia's Standard WorstedMills [13. shares. 16]. staving off thedissolution of familyownership.thesecases suggest that classic devices of business practice. Recently. the trainingof successors for activemanagement has changed gradually overthe lastcentury.sectorally relevant. or textilecompany proprietors." whichmeanta brieferrotationthrough the various departments of the firm followingcompletionof commercial or high schooleducation. This sixty-year transition towardformaleducation. as even sponsor Joseph Wharton averred in his repeated bouts with Pennsylvania's faculty. potential company leadersknew lessand lessof the life of the factoryfloor.or trusts. At a minimum. thenworkingas a regular journeyman for a periodbeforebeing"elevated" to partnership. wasenrollment in a college engineering course thatfeaturedshoptraining(in this casethe SibleySchoolat Cornell). 10.with the rest shipped off to the older Ivies or Williams more for polishthan practicality. but freshexecutive leadership restored healthyprofitability despite thegathering recession. • Collegiate business education at thesame time waslessattractive.contracts. Here. Succession isthemost widely-discussed feature of family companies' strategicchallenges.

TheBrealahrough Illusion(New York. TheGreatJackass Fallacy(Cambridge. 1880. MA. The conjectures whichabound in thispaperareterriblyfragile. March 1982. References 1.15 (1991). and3) whatbusiness environments proveconjuncturally bestsituated for familyfirm accumulation as againsta managerialist format. First. 6.as at the Globe Dye Works. not on an in-depthstudyof hundreds of suchenterprises. depending on theirbackgrounds. Melanie Archer. againwhy.conceptually precise casestudies of familyfirms that could help us determine: 1) to what extentand in what waysfamily companies actualize strategies significantly different frommanagerial businesses. This cluster of strategies for preparing the generational transition surely doesnot exhaust all possibilities.GlobeDye Work$.eithervaluableexperience couldbe gathered withoutpotentially disrupting the core operationor alternatives to the family business couldbe tried out by the next generation. 2."SocialScience History. andunique to theBromley clanin thisgroup.but the common or highschool graduate wasa morelikelyshop learnerthanthe Yale alumnus or Cornell engineer. 11].three options other than simplydrawingdividends took shape. in substance an exercise in sponsored entrepreneurship whose outcomewould powerfullyindicate capacities for succession at the corefirm(s). Irwin Robinson. Thomas Greenwood. After 1918. sons werepressed to seek initial job placementsat firms other than the family business.Instead. and how such advantages are erodedor elaborated. 3. Harry Levison. 5. in entirelydifferentfields. Yankee Toolmaker (Bridgeport.no sonsamongfirms surveyed here were rammedinto overalls at Dad's company. college-or technically-trained sonsbecame"instant" managers. 1973). RichardFloridaand Martin Kenney. with fathers covertly hoping that a returnto the fold mightfollowin due time. 6%95. fears that anill-suited son might return toseek his rightful place near the top surely accompanied suchplacementS. "Family Enterprisein an Industrial City.Business us Unusual (Zeeland.Were suchan inquiry mounted (andappropriately well-funded) it might wellhelpsatisfy the needfor multiple. 4. Hugh de Pree. On thismodel.its purpose will havebeen achieved.226 learningproduction waseasilyintegrated into a work team. but it suggests the diversemeansthroughwhich manufacturing families contended withinstitutional changes andoperating necessities whilefacing the enduring problemof constituting ablesuccessors [4.Interview. . Strategiesfor Family Organizationof Business in Detroit. 6 Third. c-'r. If this paper can serveto stimulate initiatives alongthoselines.MI. sectorally in production or salesor indeed. 1976).for they arebased on scattered documentation for a tinygroup of durable companies. 6Of course. prospective successors mightbe set up in separate businesses on their own account. 2) how andwhyfamilyfirmsselectively appropriate management innovations. in the officeor in production planning or qualitycontrol. 1955). Second. 1990).

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