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New Ways of Studying Emotions in Organizations

Family Firm Longevity and Resource Management: Financial and Social-Emotional
Wealth Rationalities
Olof Brunninge Anders Melander

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To cite this document: Olof Brunninge Anders Melander . "Family Firm Longevity and
Resource Management: Financial and Social-Emotional Wealth Rationalities" In New
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SECTION II
CONTEXTUALIZATION
DEVELOPMENTS IN STUDYING
EMOTION IN ORGANIZATIONS

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safeguarding both financial success and socioemotional endowments. covering three generations of ownermanagers from 1873 to 1991. We propose that financial and socioemotional wealth stand for two different rationalities that infuse organizational values. in a situation where the New Ways of Studying Emotions in Organizations Research on Emotion in Organizations. to grasp the shifting emphases on socioemotional and financial wealth in the management of the company. 175 213 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1746-9791/doi:10. However. a Swedish pulp and paper firm. we explore the impact of socioemotional and financial wealth on the resource management of family firms.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) CHAPTER 7 FAMILY FIRM LONGEVITY AND RESOURCE MANAGEMENT: FINANCIAL AND SOCIALEMOTIONAL WEALTH RATIONALITIES Olof Brunninge and Anders Melander ABSTRACT In this chapter. Identifying four strategic issues of decisive importance for the development of MoDo. The MoDo case illustrates how these rationalities go hand in hand for extended periods of time. Volume 11. we analyze the organizational values that guided the management of these issues. We use MoDo.1108/S1746-979120150000011008 175 .

176 OLOF BRUNNINGE AND ANDERS MELANDER rationalities are no longer in line with the development of the industry context. Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Keywords: Family business. Jacobson. Journal of Family Business Strategies). Journal of Management Studies. socioemotional wealth.g. the study of family firms has emerged as a distinct field of study within management research. Gomez-Mejia et al. the ability to exercise family influence. Our key argument is that a purely financial rationality focusing on profit maximization is insufficient for understanding how family firms deploy their resources and manage strategic choices.” Pursuing SEW does of course not exclude an . (2007. Gomez-Mejia et al. along with well-reputed management and entrepreneurship journals (e. Entrepreneurship Theory and Practice. Cruz. 2010. such as identity. have published a substantial amount of high-quality family business research.. 2007). Gomez-Mejia et al. 106) define SEW as “nonfinancial aspects of the firm that meet the family’s affective needs. 2012. p. 2010. resource management.. 2007) offers a complementary view. & MoyanoFuentes. Within a short time-span. we will discuss the applicability of traditional resource-management theories to family firms and aim to identify particular challenges facing family firms when managing their resources over time. Family Business Review. We propose that the socioemotional wealth (SEW) perspective (Berrone. Cruz. organizational rationalities. One major reason for the rapidly growing interest in family firms is the observation that models and perspectives developed to understand public companies do not always adequately address how family firms manage their resources. 2014) only quite recently. Based on a review of resourcemanagement literature. Nu´nez-Nickel. guiding values INTRODUCTION Even if the majority of firms around the globe are family businesses (Gomez-Mejia. the conflict arising between the two rationalities may have fatal consequences for the firm in question. Gomez-Mejia. such firms also try to maximize their SEW (Berrone et al.. Berrone. Combs. in order to better account for nonfinancial considerations in a family firm’s resource management. Jaskiewicz. & Rau.. Rather. & Gomez-Mejia. & LarrazaKintana. various specialized journals (e. Taka´cs-Haynes.g. 2012.. and the perpetuation of the family dynasty. and Journal of Business Venturing). 2007.

Sirmon. So far the resourcemanagement literature has been successful in identifying resources that may contribute to family firm performance (Eddleston. & Sarathy. 2003) or building conceptual models outlining how family firms manage their resources (Sirmon & Hitt. Sharma & Manikutty. In doing so. Hence. . Kellermanns. 2003). Quintana-Garcıa. Sirmon & Hitt. 2011). Pisano. 2003. by definition. & Brush. Hitt. It is undisputed that companies need to renew themselves in order to remain successful in a changing industry context (Sirmon & Hitt. Sirmon & Hitt. Nason. 2003) as well as in businesses in general (e. reconstruct. in mature family firms the ability to review.g..g. Nordqvist. This has been highlighted recently in an emerging stream of literature focusing on resource management in family firms (e.. but also including the industry context where the resources are supposed to result in a competitive advantage (Miller & Shamsie.g. 2008. & Guzman-Parra. So far.g. With few exceptions (e. 1996). Ireland. 1999. particular emphasis has been put on the family-related resources that are supposed to be unique to family firms (Habbershon & Williams. Teece. Based on the resource-based view of the firm (Barney. and develop resources becomes an increasingly important metaskill for ensuring long-term survival. This chapter explores the impact of SEW on the resource management of family firms. 2003). Zellweger.. However. we also need to link family and family business processes to changes in an industry context to understand why and how family businesses manage to compete and survive in changing industries (e. & Sirmon.. Investigating the resource-management process of family firms. However. there is however little work done on empirically studying how family firms create and manage their resource configurations over time. Ireland. This is not surprising as the family dynamics’ interaction with the business system constitutes the distinctive character of family firms. requires a longitudinal research design.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 177 interest in financial wealth. 2008. much of the family business literature has been focusing on internal family business dynamics (BenavidesVelasco. 2003. 2013). & Gilbert. the management of resources needs to be contextualized not only by considering the immediate family and company contexts. 1997). 2005. 2008). 1991). Hitt. Pearson. Sirmon & Hitt. & Shuen. & Shaw. In addition. it implies that SEW complements and in some cases competes with the financial wealth rationality we know from studies of widely held corporations. we present and discuss the concept of SEW and show how family firms handle the socioemotional and financial rationalities in management processes. 2011). Carr. Salvato & Melin.

1991). considering the dominance of the resourcebased view of the firm (RBV). covering three generations of owner-managers. FRAME OF REFERENCE In this frame of reference we develop a theoretical basis for understanding the particular challenges facing family firms when managing their resources. The firm existed from 1873 to 1991. the RBV assumes that companies can achieve sustainable competitive advantage based on unique resources that need to be valuable. For . This is not surprising. First. we review and evaluate the potential of the literature on SEW to increase our understanding of resource management over time. and nonsubstitutable (Barney. Conceptualizing the firm as a bundle of resources. Habbershon and Williams (1999) labeled these resources as the familiness of a given firm. (2) we contribute to the family business literature by linking socioemotionally and financially driven rationalities in family firms to the developments in the industry context. In the second part of the framework. The familiness resources can be seen as a basis for transgenerational wealth creation if they are used to build a portfolio of businesses by an enterprising family (Habbershon & Pistrui. 2002). When trying to understand the long-term determinants of family firm performance. rare. inimitable. its individual members. which typically focuses on a financial wealth rationality. Our research aims to make the following contributions: (1) we contribute to the understanding of the longevity of family firms by conducting a truly processual study of resource management in a family enterprise. accounting for both financial and SEW rationalities. and (3) we contribute to the literature on resource management in family firms by highlighting the role of SEW and empirically studying a resource-management process over an extended period of time. and the business. When investigating firm resources in a family business setting. we introduce the resource-management literature. The long-term nature of the study will allow us to see the shifting emphases on socioemotional and financial wealth rationalities in the resource management of the company. this chapter is built upon the case of the Swedish pulp and paper firm MoDo. There have been some attempts to identify typical familiness resources. scholars have been particularly interested in those resources that are potentially unique to family firms as they are grounded in the interaction of family. the role of resources has played a central role in scholarly efforts.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 178 OLOF BRUNNINGE AND ANDERS MELANDER Empirically.

and upgrading its resource base in order to achieve a fit with its strategic direction. . 2007). including. previously successful resource configurations need to be adapted dynamically in order not to turn into rigidities. augmenting. Teece et al. p. Resource management essentially implies that the resource configuration. participation. Interestingly. A key aspect for the longevity of a business is the flexibility of its resource configuration. trust in family stakeholders. and paths. most resource-management models. Resources that have historically underpinned the firm’s competitive advantage are not necessarily useful when the industry environment changes. the firm’s set of resources and their relationship to each other at any given point in time. 2005). are largely decontextualized. Sirmon and Hitt (2003) list human capital. for example. 1991). as the very idea of building the firm’s business on a strong set of unique resources may be hard to combine with the need to quickly change and adapt the resource configuration (Schreyo¨gg & Kliesch-Eberl. and governance structure. extend or modify its resource base” (Helfat. 1990). through the emergence of new technologies (Anderson & Tushman. but whether its resource configuration in its totality is unique. or family routines. these characteristics of the firm are also a potential source of inertia. positions. Even a family business might build its competitive advantage on resources that are not related to the family or a combination of familiness and other resources. while Habbershon and Williams (1999) provide an even more detailed enumeration. (1997) conceptualize competitive advantage as lying in the firm’s processes. 1) addresses this continuous revisiting. needs to be adapted to a changing business context. survivability capital. social capital. However. 2007.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 179 instance. In their seminal work on dynamic capabilities. The literature on dynamic capabilities defined as “the capacity of an organization to purposefully create. that is. The main focus lies on managing internal processes around resources. Although the familiness perspective is attractive especially for understanding the differences between family and nonfamily firms (Chrisman. for example. although implicitly assuming that resource management aims at better pursuing opportunities in the firm’s business context. & Steier. This changing of the resource base is easier said than done. Basically the process of resource building is linear. patient capital. Therefore. Chua. Grant (1991) proposes a rationalist planning model where resource gaps are identified in the firm’s strategy process. The value of resources is contextual and changes over time (Barney. the crucial issue for competitiveness on the individual firm level is not whether the company’s unique resources are grounded in its character as a family firm. The firm then needs to invest in replenishing.

Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 180 OLOF BRUNNINGE AND ANDERS MELANDER involving a feedback loop that stands for the continuous reviewing and updating of resources. Sirmon and Hitt (2003) address some differences between resource management in family firms and their nonfamily counterparts. Nonfinancial aspects only play a limited role as nostalgia and emotional ties might potentially disturb financially rational resource shedding decisions. Still the model assumes that the generation of financial wealth is the main rationality behind family firm resource management. Likewise studying resource management in family firms. Such conceptual models of resource management are appealing as they offer a structure for escaping from the problem of path-dependence that lies in a firm’s resources. management team meetings. such as family meetings. Even if a rational approach to resource management was desirable from a normative perspective. For example. It consists of three sequential components. Sirmon and Hitt (2003) propose a more complex resource-management model that is similar to that of Grant (1991) in being rationalist and linear (with a feedback loop). 1990) partially also applies to resource-management models. First. and normative. Moreover. In the subsequent steps. the firm makes an inventory of its resources. resources are bundled and leveraged in order to enhance the firm’s business model. normative resource-management models have limitations in addressing how the adding and shedding of resources actually occur. they potentially suffer from the same weaknesses as other planning models that are essentially rational. how likely is it that firms being stuck in dayto-day problems will engage in a structured resource-management process? Will managers be able to analyze their environment in an unbiased manner. as means for evaluating and changing resources. For instance. . adding and shedding resources if necessary. 2010) so we cannot necessarily assume that managers are able to reconsider the appropriateness of their firm’s resources in an “objective” manner. before the process returns to its point of departure and a new inventory begins. The model has been adapted to a family business context by Habbershon and Williams (1999) who sees process interventions. they assume that family firm managers are more knowledgeable about their firm’s resources and manage resources with less time pressure. It is implicitly taken for granted that all resourcemanagement decisions follow a financial rationality aiming at maximizing the firm’s business success. However. Mintzberg’s classical criticism of strategic planning (Mintzberg. given that their cognitive frameworks are structures that have developed historically? (Johnson. linear. 1987) Historical resource configurations play an important role in shaping cognitive structures (Brunninge & Melin. and consultant facilitations.

For resource management. What are then the particular challenges family businesses meet when managing their resources? The growing literature on SEW addresses this question and tells us that family businesses tend to make decisions according to a rationality that differs from that of firms that do not have clear family involvement (Berrone et al. 2007). beyond conscious managerial interventions. and use of resources are at least partly guided by considerations about what resource decisions will imply for existing socioemotional endowments. Gomez-Mejia et al. Still. 2007). they may take financial risk. Research applying the SEW perspective has shown that family firms sometimes put less emphasis on financial outcomes in order to maximize the SEW of the family owners. This would allow us to understand not only how resources are rationally managed. In addition.’s (2010) suggested dimensions reveal.. and are reluctant to transfer ownership to outsiders as they see family control as part of their socioemotional endowment (Zellweger. Kellermanns. According to Berrone et al. Nordqvist. and (5) renewal of family bonds to the firm through dynastic succession. being (1) family control and influence that the dominant owners want to maintain.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 181 Sirmon and Hitt (2003) give us some guidance in stating that the involvement of nonfamily members in family firms’ decision-making processes can facilitate change. Chrisman. 2012). the long-term perspective on businesses that family firms often take. put more emphasis on sustainability in order to safeguard family reputation (Berrone et al. is that different dimensions may point . meaning that the owners’ personal identity is intimately tied to that of the firm. this implies that decisions about the adding. The conceptual frameworks on resource management in family firms thus need to be complemented with empirical studies that investigate how the resource configurations of family firms actually develop over extended periods of time and context. This is in line with general findings that adding cognitive diversity to governance structures facilitates change (Brunninge. 2010. can make it easier for family firms to engage in the arduous process of reconfiguring their resources (Sirmon & Hitt.. A problematic aspect of SEW that Berrone et al. (3) binding social ties. avoid dependence on outsiders (Gomez-Mejia et al.. leading to social bonds and trust inside and outside the family. (2) family members’ identification with the firm. & Wiklund. & Chua. (4) emotional attachment. 2007). 2012. shedding. 2010). but also how resource configurations evolve and change in their industry context. which implies that emotional factors often interact with business factors in the family firm. this does not mean that adding and shedding resources is easily done.. For example. (2010) SEW is characterized by five dimensions. 2003).

This is of course eventually a question that is decided by the priorities set by the dominant coalition of the family firm. and Castro (2011) suggest that SEW should be given at least equal importance in studying decision making in family firms. it does not necessarily always point to a clear strategic direction (Gomez-Mejia et al. Gomez-Mejia. Although SEW is a rationality in the sense that it provides alternative decision-making criteria when compared to the financial wealth rationality. Cruz. such as governance variables quantifying family involvement and then just assuming that for instance correlations between high family involvement and risk aversion are due to concerns about SEW. particularly in quantitative studies where SEW can be difficult to operationalize. and a SEW rationality. While the desire to maintain family control and influence (dimension one) might tempt the firm to engage in dishonest behavior. An interesting question concerning the significance of SEW is of course under what circumstances a SEW rationality might dominate over a financial wealth rationality and vice versa. 2014). as family members would seek to avoid anything that might put the reputation of the family and its business at stake (dimension two). it still offers an interesting opportunity to complement traditional resource-management models. a financial wealth rationality that is primarily oriented toward ensuring business success in its changing industry context. De Tienne and Chirico (2013) argue that in a family firm holding a portfolio of firms. overemphasizing a financial wealth rationality. Even in family firms where SEW plays an important role. Berrone. 2014). 2013). The SEW literature thus conjures up a picture of two different rationalities influencing resourcemanagement decisions. & Imperatore. Miller and Le Breton-Miller (2014) criticize studies on SEW for often relying on indirect measures. The heterogeneity of SEW types and sources makes it challenging to empirically capture the phenomenon. family firm identity would rather do the opposite.. Here. the importance of the financial wealth rationality as opposed to the SEW rationality might thus differ depending on what particular resource is . Cruz. not all firms have the same level of SEW associated with them. primarily relating to family dynamics (De Tienne & Chirico. Neither does it per se deny financial considerations. in-depth qualitative studies might provide a clearer understanding of the impact of SEW on strategic choices. Despite problems with the SEW construct. This suggests that resource management will become particularly challenging in choices where the two rationalities point in different directions.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 182 OLOF BRUNNINGE AND ANDERS MELANDER to different directions for strategic choices (Gomez-Mejia.

& Miller. 2013. Miller. resistant to change. This is a true for the extant literature on resource management. Scholars being critical of the SEW perspective have remarked that the rationality underlying SEW has already been addressed by previous literature.. family history and corporate history become more and more entwined (Blomba¨ck & Brunninge. 2013). for an accumulation of SEW endowments over the life cycle of a family business. Taking a resource-management perspective. being one dimension of SEW (Berrone et al. 2004). (2010) see past performance. Chirico. 2013. commitment to the founder’s business. implying that the reconfiguration of resources becomes an emotionally challenging process even if it eventually succeeds (Salvato. Over time. 1986. & Sharma. Sciascia. Hall. Habbershon and Pistrui (2002) claim that some family firms concentrate too much on the preservation of family legacy assets for emotional reasons. Voordeckers. Mazzola. Family firms are supposed to develop cultures that make them inflexible. repeated dynastic succession. They build their argument on the observation that later generations in a family firm often put a strong emphasis on creating financial wealth (Van Gils. They risk sustainable economic wealth creation if they get stuck to historically established business models in order to protect past generations’ legacies (Habbershon & Pistrui. We conclude from this discussion that there are contradictory arguments both for a decreasing impact of SEW over time. 2006). Miller & Le Breton-Miller. On the other hand. Sirmon and Hitt’s (2003) resource-management model for instance acknowledges that nostalgia and emotions may have a disturbing effect on a resource-management process that is overall guided by a financial wealth rationality. Salvato et al. 2011). and a feeling of personal responsibility to the founder’s business as key inhibitors of change . & Nordqvist. might also create a tradition and expectation that the firm is passed on from one generation of owner-managers to another as a family heirloom (Karlsson Stider. meaning that SEW is prioritized over financial wealth considerations. 2014). For instance. Le BretonMiller. as well as. Le Breton-Miller. and Kellermanns (2014) found that generally SEW preservation needs tend to decrease with firm age. 2002). 2010). and Scholnick (2008) outline the stagnation perspective on family firms as focusing on the conservatism of family businesses. & van den Heuvel. 2001). albeit using other labels (Miller & Le Breton-Miller. there is a logical argument that in some firms the importance of SEW might increase over time (Berghoff. and adhering to family traditions (Dyer. 2000).Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 183 concerned. 2010). Melin. This might be due to the emergence of family branches pursuing particularistic needs and showing less identification with the family business as a whole (De Tienne & Chirico.

it may at the same time pursue changes that aim at increasing financial wealth. The diverging opinions on the inertia of family firms as well as the influence of paternalistic leaders underline the importance of a fine-grained analysis that shows how.. 1957). relying on one dominant leader at a time. Interest in the past and in family tradition does not necessarily lead to stagnation.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 184 OLOF BRUNNINGE AND ANDERS MELANDER in family-controlled organizations. Dyer (1986) distinguishes between pastoriented and present-oriented paternalistic firms. the latter type may preserve some family tradition. (2010) discuss the role of strong family business leaders who act as “family champions of continuity” (FCC). socioemotional endowments were mainly manifested in values that were sufficiently abstract to apply them to changing contexts. Sharma and Manikutty (2005) propose that individualistic cultures in family firms. namely the concentration of power to an autocratic family leader. a process which is apparent in family firms (Schein. Applying a SEW perspective to these findings. 1983). Overall. The FCC concept. by focusing on handling current needs and adapting the firm to new challenges. while the former emphasizes family legacy and sticks to old patterns. why. as there is less need for consensus-building in the family. firms can combine past and present/future orientation by using the past to facilitate change. create a good basis for changing resource configurations. Both types share the basic characteristics of paternalistic businesses. 2005. Salvato et al. like Dyer’s (1986) archetypes of paternalistic leaders. the literature also points at openings for change. or by serving as a source of inspiration for using their resources in novel ways (Brunninge. 2009. Lamberg. These individuals bring about change in their firm’s resource structure while maintaining continuity by preserving timeless values. emphasizes the role of strong individuals in either preventing or facilitating change. which are rooted in the history of the family and its business. Rather than facing a choice between either emphasizing traditions or breaking new ground. and under which contextual influences family businesses change or stagnate (Ojala. Salvato et al. we conclude from our literature review that resource management in family firms cannot be understood by applying a perspective that . For instance. Institutional theory suggests that organizations and their key operating principles are infused with value during the early years of their development (Selznick. If a family business is able to safeguard SEW endowments in the form of guiding values. Founders imprint their personal values on the organization. either by providing a sense of continuity in times of turbulence (Brunninge. 2010). 2010). Although many scholars emphasize inertia and traditionalism in family firms. 2010). However. & Melander. Brunninge & Melin.

2012). echoing the urge for contextualized process studies (Pettigrew. A context that today must be classified as hostile to family governance (Casson. the value of resources are impossible to assess (Armstrong & Shimizu. 1990). These aspects have been decisive for our choice of MoDo in its industrial context as our explorative case. 2013). we will study the interplay over time between considerations guided by a financial rationality and those oriented toward SEW. What rationalities have dominated different resource-management choices? To what extent has it been possible to combine the financial and SEW rationalities? And finally. Glete. At the same time. 1989). Two of the most prominent are the value of resources and the understanding of the process of resource management (Rau. particularly large owner families might face situations where different individuals or owner coalitions have different priorities when it comes to dealing with apparent conflicts between financial and socioemotional outcomes. 2007. . but even if the number of empirical studies is impressive. Without a thorough understanding of the nature of the resource environment. 2007. 1999. the value of resources is low if they are not “in motion. how has this related to the interplay between internal family dynamics and developments in the industry context during different periods of MoDo’s history? METHOD The Resource-Based View is one of the dominating topics in management research (Newbert. Further. Family businesses create both financial wealth and SEW for their owners and it is far from certain that family members in control will prioritize financial outcomes over socioemotional endowments when faced with a choice between the two. which is rare in research (Armstrong & Shimizu. 2007).. 2006. In our case study of MoDo. Moreover MoDo is an example of a family firm that we can follow both in prosperous and less prosperous times. 2013). Moreover. MoDo was a well-known company in Sweden with high-profile leaders operating in an important and distinctive industrial context. Gibbert.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 185 exclusively relies on a financial rationality. extensive data on the company and the industry is available. Over a period of more than hundred years.” so without an understanding of the processes of resource management the link between resources and performance outcomes is weak (Rau. Sharma & Carney. Zellweger et al. 2011). some methodological issues still remain to be sufficiently addressed.

In the appendix we have included a presentation of the data that forms the basis of this study. However. Peterson. Na¨si. and Porter (1993. and Narayanan (1983) and Ocasio’s (1997. vital data on the structure of the Swedish pulp and paper industry has been developed. building on Dutton. • The start of the paper machine in Husum from 1969 to 1972. • The “third block” strategy in 1978.1 Lamberg.) described the competitive advantage of the wider industry context applying the diamond framework (Porter. In retrospect. • The buildup of systematic R&D activities in organic chemicals in the 1930s. So¨lvell. 2011). we identified four strategic issues that had decisive importance for the future development at the time when they emerged. 1996). Fahey. these issues were also viewed as decisive for the strategic direction followed for a long period of time These issues were: • The investment in the Husum pulp mill in 1917. and Sajasalo (2006). MoDo and its leaders received a lot of public attention and extensive data on the family and the management of the firm is available. Ojala. we further analyzed our data. an understanding of the resource environment was developed by Melander (1997). On a more detailed level. 76ff. 1990). Melander. in different historical expose´s on MoDo. In the analysis of MoDo’s historical development. we used the data to construct a chronological narrative of Modo’s historical development. . 1999. p. As a first step of analysis. Following Pettigrew’s statement that “truth is the daughter of time” (1990. & Holtmann. By focusing on attention given to specific issues we can understand how resources have been valued and allocated both historically and in a prospective view (Langley. The understanding of resource management in a historic case that covers a period of more than a hundred years is challenging. Ojala. we focused on issues that have been in focus repeatedly over time. Furthermore. 2012. & Sa¨rkka¨.2 and Ja¨rvinen. 271). Schreyo¨gg. 2011) research on identifying and processing strategic issues from an attention-based perspective.186 OLOF BRUNNINGE AND ANDERS MELANDER Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Operational Method In previous research. for example. and Lamberg (2013). p. extensive research relates the Swedish pulp and paper industry to international development (Lamberg. Ojala. We also conducted interviews with three different members of the owner family. Ocasio. In the second phase. Zander. Sydow. Peltoniemi. 2011.

Dutton & Penner. characterized as a man of dynamism and vigor and as an honest businessman (Ahnlund. 2005) and Melander. 2010. Melin. It is thereby argued that strategic issues offer a rich empirical setting for the study of organizational values (Bansal. and Nordqvist (2011): • • • • Driving forces that made the issue enter the top management agenda? Actors involved in the management of the issue? Resource mobilized in the issue processing? The family perspective on the issue? The family business literature focusing on the longevity of family firms emphasizes the importance of stable guiding values both for constraining and enabling changes in a firm’s resource configuration (Salvato et al. The values of interest were those that repeatedly are referred to when motivating. Sharma & Sharma. To qualify our analysis. At the end of the 19th century. arguing. guided by the issue framework introduced and operationalized by Melander (1997. MoDo: 1873 1991 When the founding father JC Kempe. At this time MoDo was just one of the branches of the businesses run by the business family Kempe.. Thereafter we present and analyze the strategic issues. 1993). He and his brother Seth closely cooperated in organizing the first systematic research in forestry and pulp technology in 1899 and Frans’ passion for systematic research continued (Boseaus. 1949). operations became more streamlined and the decision was made to focus on sawmilling and wood pulp. Frans Kempe was the architect behind the focused company and the rapid expansion. 2003. . died in 1872 he was mourned by 11 children from three marriages.Family Firm Longevity and Resource Management 187 Downloaded by University of Toronto At 12:55 07 February 2016 (PT) The presentation of the strategic issues in this chapter begins with a brief overview of MoDo’s history and the industrial context in which MoDo operated. The identified values are analyzed from a resource-management perspective including the respective role of the financial and social-emotional wealth dimensions. 2011). 1917). In 1884 JC Kempe’s third son Frans was appointed managing director and took full control of the company. in the third phase we made a cross-sectional analysis in order to identify values that infused the identified issues. As a way to manage a fair succession in 1873. all heirs received a share of MoDo in which all JC’s businesses were incorporated in. and justifying the identified strategic issues.

due to Frans’ age. That year his half-brother Seth was appointed chairman of the board. The foundation soon became an important owner as the dividend was reinvested in MoDo. We therefore choose the decision to invest in the Husum pulp mill as the first strategic issue to be further analyzed. was eager to tighten the ownership of MoDo and to balance family influences (Kempe. Lotty. Under Carl’s reign. 2006). . In 1936. named after the two brothers. R&D became the platform from which numerous products and production innovations were developed (Valeur. based on by-products from the production of wood pulp. The Husum pulp mill was later to become of decisive importance for the company’s development and this first investment was followed by many more.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 188 OLOF BRUNNINGE AND ANDERS MELANDER From later research it is clear that Frans gradually ran MoDo on his own and that there were several disputes between him and other close relatives (Interviews. married Bruzelius. the strategy was to increase the capacity in the pulp factories close to the two main sawmills in Domsjo¨ and Husum. Seth and Frans who had originally collaborated so well (Kempe. 2006). 2000). MoDo was listed on the stock exchange. 2000) and hence we chose the buildup of systematic R&D activities in organic chemicals as the second strategic issue. 1949. and established a foundation in her will. MoDo 1917 1949 Even though Frans was succeeded as Managing Director by his son Carl Kempe in 1917. 2006). Valeur. a Seth ally. The appointment of the bon vivant Carl was controversial in the family and the struggle between the two branches of the family continued (Unger. Frans dominated the company as chairman of the board until 1922. Lotty Kempe. 1967). It was at this time that the division between two branches of the Kempe family tree emerged. 1951). Seth stayed on until 1930 (Kempe. combined with an organic chemical industry. Frans remained in office until 1916 when he resigned in anger after being criticized by the board (consisting of close relatives) for the decision to invest heavily in the Husum pulp mill. despite the ongoing world war. The more systematic R&D activities that began in the 1930s showed to be an excellent platform for the expansion (Boseaus. The same year. one of JC Kempe’s daughters. Kempe. Major reasons were to enhance trade in the share and to become more publicly known (Ga˚rdlund. 2006).

As a result. 1989). It was a daring investment both when it came to . 1997).Family Firm Longevity and Resource Management 189 Downloaded by University of Toronto At 12:55 07 February 2016 (PT) MoDo 1949 1971 In 1949. commercializing all by-products developed during the war.4 The use of pulp for manufacturing paper was almost dimmed by all new uses arising as a consequence of the war experiments (cf. Herno´d. Bengt Lyberg was appointed MD. This consistent focus on pulp technology was anchored in the extensive R&D efforts. made no clear choice between the strategic alternatives. a grandson to JC Kempe from his third marriage and representing the Seth branch. 1979). Pulp manufacturers in northern Sweden used their R&D departments to develop a range of spin-off products. The decision was late when compared to the major competitors in the industry and implementation lasted. In Sweden. Peterson (1996) concluded that MoDo developed at least six industry-wide technology innovations after World War II. an important pulp producer in 1945. Bengt Lyberg announced that the company also decided to follow the first strategic alternative. The reason for this change between the two branches was that the “Frans branch” was unable to present a suitable successor to Carl. and integrate the production of pulp with a production of paper. remaining operative chairman of the board until 1990. Of predictive importance was the decision of the largest pulp producer SCA in the mid-1950s to integrate with a production of newsprint and cardboard paper (Gaunitz. the route for the future was under review (Melander. This decision was the starting point for several new investments. Carl Kempe was appointed chairman of the board and Erik Kempe. The Second World War opened up new opportunities. Erik Kempe suddenly died from a heart attack and due to the lack of successors in the family. Carl remained chairman of the board until 1965 when he was succeeded by his nephew Matts Carlgren. He was also surrounded by family representatives in the management team. In 1964. In 1959. 1942). but there was an emphasis on continued investments in organic and later petrochemicals (Carlberg & Scholander. 1984). MoDo. Production in Husum did not start until 1972. Erik and Carl’s comanagement of the company was not without frictions (Lyberg. that is. succeeded Carl as MD. the two dominating strategic alternatives5 were to integrate pulp with a production of paper or to develop the pulp industry into an organic chemical industry.3 Lyberg’s time in office until 1971 was characterized by a balancing of family interests. Matts took over the post as MD in 1971 and stepped down in 1985.

As MoDo celebrated its centennial in 1973. the Kempe foundations 20%. the technological developments forced the company to decide between heavy investments in the chemical or in the pulp and paper business.” coined by Matts Carlgren in the late 1970s. SCA was closely linked to Svenska Handelsbanken and STORA belonged to the Wallenberg sphere. As we will see later. MoDo 1973 1990 Matts Carlgren. Carl Kempe’s nephew. In this niche. In 1975. including S. This division made family control fragile. 1991). MoDo was still controlled by the Kempe family. Matts Carlgren himself owned roughly 22% of the votes. reflected the idea of a diversified holding company covering a large part of the pulp and paper product range and hence contesting the two leaders in the industry (Ericson. but the voting majority was weak. Banken. he continued exercising dominant influence as an operative chairman of the board until 1990.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 190 OLOF BRUNNINGE AND ANDERS MELANDER the size of the machine and the choice of paper grade (Lyberg. and other Kempe heirs 7%. took over the post as MD in 1971. The term “third block. that is. making the investment extremely profitable. MoDo could become a dominant player. but now Stora Kopparberg (later STORA) emerged as a second contender. The alternative chosen by MoDo was writing paper. a grade that traditionally had low volumes and was mainly produced in the south of Sweden. In the early 1970s an “elite division” started to emerge in the pulp and paper industry. Although he stepped down in 1985. He was succeeded by two nonfamily MDs during the period 1985 1990. The decision was to eventually divest most of the chemical operations and use the financial resources released to invest in a second huge writing paper machine. The investment was adventurous as the financial bases were weak at the time. 1984). the implications of . in total about 50% of the company. An important reason for this adventurous investment was the tempting market opportunities. The initiative to build a writing paper machine in Husum therefore surfaces as the third strategic issue to be analyzed. The commission of the large writing paper machine in Husum coincided with an extreme growth in demand in 1972 1974. SCA had been the industry leader for long. The “Frans branch” represented by Carlgren ran the company and the “Seth branch” controlled the Kempe foundation. Both these dominating competitors to MoDo had strong links to banking spheres. E.

including currency carry trade. and intensive reduction of capital tied in fixed assets. The acquisitions made in the 1980s. soon a second internationally oriented acquisition wave began in the industry. The adoption of the “third block” strategy is therefore identified as the fourth strategic issue to be analyzed. a new opportunity to continue the strategy emerged when Holmen. 173 174. the group was organized as a holding company with several business areas. one of MoDo’s major competitors and he resigned as chairman of the MoDo board in 1990. high above the industry average (MoDo. When the acquisition of Holmen was eventually finalized in 1988. offensive marketing to the financial market.1986. Matts Carlgren was also personally exposed. after a harsh struggle with STORA. Appendix. and paperboard was for sale. tissue.” Besides commenting on the ongoing acquisitions he also underlined features that discerned MoDo. Carlgren was forced to sell his shares in MoDo to SCA. In 1985. p. The urge to keep the majority ownership within the Kempe family made it impossible to make “all-share deals” as a way of financing future acquisitions.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 191 adapting this growth-related strategy were remarkable in the decade to come. up from 54% in 1980. MoDo’s indebtedness increased radically in the 1970s and in 1982 it reached 71. MD Matts Carlgren commented on the future prospects of the group. Carl Kempe’s grandson. At this time. 2005. Commenting on the end of the family control of MoDo. One was R&D in which MoDo had been able to show a number of “firsts” over the years and another one was the management style of the company. a medium-sized producer of newsprint. An opportunity to implement the third block strategy followed in 1983 when MoDo. took control over Iggesund a very profitable cardboard mill. The strong belief in family control of the company offered tough restrictions on the applicable growth methods (Croon. authors’ translation). MoDo had almost caught up with the two rivals in terms of sales. Annual reports 1978 1984). He concluded that family ownership was long term and guaranteed the outlined strategy “in the foreseeable future. The Kempe foundation refused to follow Matts’ decision to sell to SCA and the control of the company became unclear.. 2005). strained MoDo’s capital base.4%. 219). Matts became unable to pay interest on the loans needed to defend his ownership (Frans Kempe in Croon. Being one of the major owners. As a consequence. pp. However. concluded that “The . In 1985/1986. “Top management will also in the future bee concentrated to a few decisionmakers that employs short and fast decision-making processes” (Matts Carlgren in Ga˚rdlund. Frans Kempe jr. MoDo pursued an aggressive financing strategy that was unusual at this time. Following the recession in the early 1990s.

. often controlled by single entrepreneurs (Glete. Technology Waves in Northern Sweden 1700 1960. An owner family that had no financial resources outside the ownership of MoDo shares. 1. Source: Created by authors based on Layton (1979). mainly in the northern parts of the country. p. 2005. When MoDo entered the financial ‘elite division’ neither the family nor the management was prepared or had the influential financial network needed” (Frans Kempe in Croon. Appendix. As the access of quality timber decreased and the techniques for pulp Peak Technology Charcoal ironworks Ca 1800 Water-based Saw mills Ca 1830 Steam-based Saw mills 1900/1910 Pulp factories Integrated Paper and pulp mills 1950/1960 Time Fig. the first wave of importance to MoDo was the steambased sawmilling. Downloaded by University of Toronto At 12:55 07 February 2016 (PT) MoDo in the Industrial Context Based on Layton (1979) we can summarize the dominating forest-related technologies in northern Sweden at the 19th and 20th centuries. Myhrman. 219). 1987. As a result substantial fortunes were created. As Fig. 1984. Scho¨n. the value of sawmilling production increased more than 50% in Sweden.192 OLOF BRUNNINGE AND ANDERS MELANDER MoDo Group has since long been managed by a strong owner-family with an industrial long term thinking. 2008). 1 shows. In the period 1869 1893.

p. 2008).Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 193 production based on wooden fiber developed.500 (Svenska Industri 1925. 1926). the decrease has gradually been evolving over the entire period of 1873 1990 (Fagerfja¨ll. the number of employees in the pulp industry increased from less than a thousand to approximately 17. A major shake-out of individuals and family owners in the sawmill. During the same period. 1951.6 however.) shows that MoDo with an exception of two years was considerably more profitable than the average of the five most important competitors in the period 1880 1913.3 million tons at the same time as the number of mills decreased from 76 to 54 (Svensk Industri. . At the end of the 1880s. The decrease in both the number of companies and production units indicates the emergence of substantially larger companies reaping the benefits of economies of scale. The third wave of changes in the north started in the 1950s. pulp.9%. and paper industry took place in 1932 when the Swedish industry suffered from the “Kreuger crash”. Paper production capacity increased with more than 300% to 9. 1950). Between 1960 and 1990. but in the period 1929 1938 MoDo’s market share increased from 5. Sawmilling companies extended their operations to a production of wooden pulp. 1. 1989). MoDo followed these overall trends and developed from a sawmill company to a sawmill and pulp company. The expansion continued in the following decades and a systematic comparison by Ga˚rdlund (1951. in a time in which national production of chemical pulp increased by 26% (Ga˚rdlund. 1992). Production of pulp began in 1902 and at first production growth followed the overall growth in Sweden.6% to 6. Between 1875 and 1890 sales of sawn timber increased more than five times (in the same period that the Swedish production doubled).2 million tons. and paper. the pulp industry doubled its annual capacity to 11. the paper industry was operating in the south of Sweden and did not follow the waves outlined in Fig. In the period 1875 1920. MoDo was number eight on a list of the 50 largest sawmill companies in Sweden. These production figures and especially the high export share made Sweden one of the five largest pulp and paper countries in the world. This relative increase came at a time in which Sweden’s share of world export of pulp was about 40%. 54ff. and finally to an integrated producer of sawn timber. there was a shift in the industry. pulp. the number of pulp mills was reduced from 127 to 54 and almost the entire capacity increase was integrated with a production of paper. At this time. Linked to this development was the fact that the remaining companies more often went public and few remained with prominent individuals or families as distinctive owners (Glete. Streyffert.

SCA was by far the largest.3 7. the industry in total consisted of 13 mill companies and 12 companies running more than one mill.1 5.7 62. as illustrated in Table 2.2 5. However. Billerud.250 (1) 960 890 850 (4) 830 610 595 575 515 480 7.0 4.3 7.993 12. with a merger of 16 independent companies in 1929. but MoDo was ahead in organic chemical products.8 7. were acquired by the dominating three and one was taken over by the government (Ncb).4 100 Capacity Paper (’000 Tons) % of Total Paper Capacity Total Capacity (’000 Tons) % of Total Capacity 760 (2) 120 880 140 (9) 475 195 365 475 225 440 4. . SCA had a higher average and earned money in the entire 1960 1990 period. from the companies named in the table.480 5.8 15.3 100 Source: Annual Reports 1972.9 3. Company SCA So¨dra Holmen MoDo Stora Ncb Billerud ASSI Korsna¨s-Marma Fiskeby Ten largest Total Capacity in the Swedish Pulp and Paper Industry in 1972.555 11. MoDo’s position in the Swedish pulp and paper industry was still prominent. MoDo was one of the largest pulp and paper companies in Sweden.4 4. SCAs turnover was 500 Million Swedish Kronor almost three times higher than MoDo’s.1 7.7 2.5 4.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 194 OLOF BRUNNINGE AND ANDERS MELANDER In 1950.4 7.2 0.3 6. At this time SCA dominated in sawn timber.8 8.3 68. If we compare MoDo with the market leader SCA in terms of growth of sales.1 0. and Fikeby. the differences in return of investments (RoI) became pronounced after 1970.1 1.575 8.9 3. Table 1 illustrates MoDo’s dependence on pulp for sale and low engagement in paper production. and MoDo) produced more than 75% of the total output in the industry in 1990. three companies. Table 1.3 7.0 100 1. Holmen.7 2. In 1990.2 12. In the beginning of the 1970s.0 14.3 5.8 5.7 7.7 6. MoDo and SCA kept the relative difference. However.568 10. the three dominating companies (SCA. As a consequence. but MoDo suffered a loss in operating profit in 1978 1979 and 1981 1982.1 65. Capacity % of Total Pulp for Sale Pulp for Sale (’000 Tons) Capacity 490 (3) 840 10 710 (2) 355 415 230 100 290 40 3. Out of the top ten in 1972.075 5. STORA.

5 9.468 132 9.6 9. Note: RoI is counted as an average over three years to equal out major changes.7 0.8 10.708 736 11.6 623 80 12. 195 .435 1. 1979 1981.8 1970 (RoI average 1969 1971) 1.059 91 8.5 1990 (RoI average 1989 1991) 18. MoDo Operating Profit in MSEK MoDo Profit Margin (%) MoDo RoI (%) SCA Sales in MSEK SCA Operating Profit in MSEK SCA Profit Margin (%) SCA RoI (%) 1960 (RoI average 1960 1962) 435 55 12.6 31.711 5.9 1980 (RoI average 1979 1981) 3.122 1.5 12.0 10.045 5.4 3.808 281 7. 1969 1971.4 Family Firm Longevity and Resource Management Table 2.0 8.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) MoDo Sales in MSEK MoDo and SCA in Terms of Sales and Profitability. Source: Modo and SCA Annual Reports: 1960 1962.9 6.2 1.

The outcome of the issue. Croon. Frans and his half-brother Seth had since long worked together and complemented each other.” to hand over to his son Carl. The major actors in the issue were Frans and his son. among other relatives. However as MoDo grew. was the formation of mistrust between two dominating family branches (named after “Seth” and “Frans” Kempe) (Kempe. the MD of MoDo since 1884 resigned. demands on dividends from family members increased at the same time as Frans gradually viewed MoDo as “his own possession. 2005).196 OLOF BRUNNINGE AND ANDERS MELANDER Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Issue Analyses The Investment in the Husum Pulp Mill in 1917 On December 21. in terms of his position as MD and having a strong personality he managed both to appoint his son Carl as successor and himself as chairman of the board. 2006). besides the investment in the Husum pulp mill. Frans’s power position was fragile as he did not control the majority of the company. disregarding family members’ desire for short-term dividends. the successor Carl. which was made to balance owner interests in the company. The major difference was that he now applied a long-term financial rationality. such as the creation of the Kempe Foundation in 1936. made relatives worried about the management of the company. together with the financial setbacks in the first world war and Frans aging. This mistrust later influenced other issues in the company. However. 1916 Frans Kempe. In fact there had been no formal board meeting for a period of over 30 years in MoDo and Frans did admit that his leadership was despotic (speech by Frans Kempe reproduced in Unger. The decision to build was controversial as it was made in the middle of a world war and in a volatile market situation. Frans focused on MoDo and Seth (and other relatives) was managing separate forest industry businesses. The reason why the issue became important was not only the investment in itself. and on the other side the younger half-brother Seth and his sister Lotty Bruzelius. Earlier Frans had made similar decisions without asking or discussing with relatives. His argument was that in the long term. and the . and there were repeated requests for him to resign (Kempe. Frans was an important shareholder but Seth and his relatives owned majority of the company. the decision was rational as it was in line with the gradual shift from sawmilling to a production of pulp in the north of Sweden. The reason for the resignation is often said to be a dispute over Frans’ single-minded decision to build the Husum pulp mill. This. The background was an escalating controversy between Frans Kempe and his relatives. 1967). the cornerstone in the coming expansion of the company (cf. 2006).

Deciding about the Husum issue. Carl Kempe. At MoDo. The Buildup of Systematic R&D Activities in Organic Chemicals As the pulp industry expanded. but the report “Svensk Skogsindustri i Omvandling” (1972. 1949).Family Firm Longevity and Resource Management 197 Downloaded by University of Toronto At 12:55 07 February 2016 (PT) succession after Carl Kempe and Erik Kempe in 1949 and 1959 (Lyberg. He followed the tradition of systematic innovation that his father Frans introduced in foresting (Boseaus. In order to meet the international competition from oilbased chemicals. 239) reports that the industry average was only 0. 2005. 2012). the interest for systematic research and development increased and in the beginning of the 1930s all dominating pulp companies started R&D departments. p. that is. The investment eventually secured long-term streams of financial wealth at the sacrifice of SEW in the family. Boseaus (1949) reports that the laboratory inaugurated in 1941 was well in parity with the leading ones in the United States. It took until 1973. Interview with Karl Kempe. A rationality relating to the resource of family ownership . Family relations suffered from the consequences of the Husum conflict for decades. Carl’s efforts were rewarded by wartime conditions. MoDo had an early focus on the organic chemical industry based on by-products from the large-scale pulp production. 1917 1949 was the champion of the investments in organic chemical technology (Ga˚rdlund. Several observers make the interpretation that the company’s managers had become emotionally attached to the business and clung to the resources in the chemical industry. His undisputed position as a successful MD made the strategic choice of continuous efforts in this business area unquestioned even after the war. Boseaus (1949) reports that MoDo invested one million SEK in R&D which was about 2% of total sales. MoDo was on the forefront in this area and was one of the companies that invested most both in production and development (Ga˚rdlund. 1986). Frans Kempe‘s entrepreneurial spirit in forestry was in line with innovation activities in pulp technology. 1984). six years after his death.5% in 1963. This in turn demanded even more intensified research. MD. they protected SEW endowments in favor of releasing resources for other investments that would have followed a financial wealth rationality (Croon. Operations were profitable during the war and forecasts about a fastgrowing market made MoDo continue to invest in organic chemistry (Lyberg. p. Carl Kempe was guided by a financial wealth rationality. 1984. 1986). that the chemical operations were divested. Comparative figures are difficult to obtain. 183). efforts were now more focused to niche products that often had to be oil-based.

The background to the late decision was that major financial resources had been used in the chemical industry. 2005). and the third focused on a merger with the largest . together with a continuous need for capital in the pulp industry and a costly buildup of a hygiene division. one of the largest pulp producers. not on divesting old businesses (Croon. the second focused on organic growth in existing units. In the struggle between the financial wealth logic of renewing MoDo’s business portfolio for future competitiveness and a SEW rationality of preserving the portfolio established by previous generations. renewal eventually prevailed. It took until 1969 before the final choice of building a writing paper machine in Husum was made. The decision was late compared to the major competitors. At this time MoDo developed a long-term strategy. The focus was on developing new. albeit with a serious delay. The Start of the Paper Machine in Husum in 1972 In 1964. The choice was unexpected as the writing paper technology was undeveloped and the market was highly fragmented. Bengt Lyberg (MD 1959 1971) announced that the company intended to integrate the production of pulp with the production of paper. MoDo. 2005). Three scenarios were outlined: the first focused on acquisitions of nearby paper factories/companies. had started a restructuring of ownership in the industry. Forsgren and Kinch (1970) compared the development of 17 companies in the industry between 1955 1957 and 1966 1968. The Third Block Strategy in 1978 The successful investment in a large writing paper machine in Husum was followed by a second one. offering expansion opportunities and synergies in wood supply. was down from position 12 (out of 17) to position 14 (out of 15). The machine was supposed to have a capacity of 70. Now market conditions had changed and MoDo was suffering from the recession in that last years of the 1970s which was at the same time that the major rivals. SCA and STORA.198 OLOF BRUNNINGE AND ANDERS MELANDER Downloaded by University of Toronto At 12:55 07 February 2016 (PT) had become dominant for MoDo’s research management and it was only after much hesitation that Matts Carlgren eventually decided to divest the chemicals business in favor of businesses that were more promising financially (Croon.000 tons to be compared with the average new writing paper machine in Sweden with a capacity of 30.000 tons. capital-intensive businesses. This happened while the company invested heavily in petrochemicals and the hygiene sector.

The result was a loss of the family control of the company in 1990. While the desire for growth could be justified from a financially oriented logic. Matts Carlgren personally had to take substantial loans in order to finance his share of the Holmen acquisition and when his private operations made a loss at the same time as stock prices decreased. the risky way of funding it was entirely driven by a SEW rationality.” refers to the first of these scenarios and this was the strategy that was implemented. The first opportunity came when the dominant owner of the very profitable Iggesund cardboard mill died in 1979. Decisions were not anchored and the principle of absolute family control (50% of voting capacity) was not negotiable. an integrated company. The second step was Holmen. the situation became impossible (Kempe. 2005). p. Croon (2005) reported that the pace of the acquisitions was also questioned by the Seth branch in the family. “The pattern was that Matts suddenly announced that he had acquired a new stock of shares and ordered the CFO to get hold of the payment necessary” (Croon. The importance and value of these guiding values is then analyzed from a resource-management perspective. financing became a bottle neck and it was not until 1983 that MoDo consolidated the acquisition. As a result. 2005). Carlgren’s management in this phase followed the entrepreneurial and sometimes even despotic style of Frans and Carl. When the acquisition of Holmen was eventually finalized in 1988. but with several rather independent business areas was created.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 199 rival. . including the respective role of the financial and the SEW rationalities. 2005. Carlgren’s financial risk-taking was significant.. Also on a personal level. Gomez-Mejia et al. All these scenarios mirrored MoDo’s traditional belief in economies of scale The term “third block. 107). 2007). In the following struggle with STORA. Acquisition of shares started in 1985 and in the following years yet another ownership struggle took place between the Kempe family and some of Holmen’s main owners. Carlgren was willing to expose MoDo to high financial risk in order to preserve the ownership dominance by the family (cf. a newsprint/hygiene company. SCA (Croon. Five Guiding Values Following the issue analyses we now proceed with the second-order analyses in which we identify five guiding values influencing management choices that surface in the issue analysis.

JC’s fortune eventually became the foundation of MoDo. In times of financial deficits or leadership vacuums (e. The company is the family and the autocratic leader of the company is the obvious head of his family. 48). The head of R&D. The owner family is to subsume to this hierarchical order. An example of this appears when the “third block strategy” (issue two) was formulated. 1993. This was complicated as we seen in issue one. 1984) and Matts Carlgren (Kempe. Ingemar Croon commented on the situation in those years with the following words: “The years between 1965 and 1970 was a time of joy when it came to research and development” (Croon. but Wilhelm’s .. He was followed by Carl Kempe who continued his scientific efforts when constructing the organic chemical development path in the 1940s (issue two). 2005. he made MoDo to a predecessor in social issues” (Nordstro¨m. p. In fact it was two opposing family branches that owned the company. Family Ownership of the Firm The cornerstone of the autocratic leadership was absolute ownership control through the Kempe family. An Entrepreneurial Management Perspective The Napoleon wars had ruined the Kempe family. This emphasis continued during the 1950s and 1960s. p. p. Emphasis on R&D Frans Kempe initiated scientific research in foresting already in the 19th century and initiated several new innovations. 103).g. This principle established by Frans (and probably JC) is carried on by Carl Kempe (Lyberg. 2006). Frans Kempe was characterized as: “If there is any manager that deserves the label ‘father of his workers’ it is Frans Kempe …. 2005. As long as there was one autocratic leader successfully running the company. Matts Carlgren declared that a decisive criterion for the strategy chosen was the possibility to ensure absolute ownership control by the Kempe family (Croon. the situation was manageable.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 200 OLOF BRUNNINGE AND ANDERS MELANDER Autocratic Leadership Surfacing especially in issue one and four is a strong belief in patriarchic ownership. the Husum crisis in 1917. 20). Autocratic leadership was combined with a patriarchic caring for employees. In a research thesis on labor relations. when Erik Kempe died in 1959 and in the turbulent 1980s) the implications of the strict interpretation of ownership control however surfaced. JC Kempe and his brother Wilhelm were sent to Sweden and created two impressive fortunes.

Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 201 was gradually eroded and this branch of the family eventually disappeared in the forest industry. 1991). To be cautious could sometimes be mixed up with cowardness” (Interview with Matts Carlgren after his resignation from the MoDo board. Emphasis on Economies of Scale Sawmilling and pulp & paper are all process-oriented industries in which economies of scale are important. as potentially crucial for resource management. no. 1967. Initially. they resemble the “ingrained values” that Salvato et al. one driven by financial wealth considerations and one driven by SEW. DISCUSSION In our theoretical frame of reference we identified two rationalities. JC and . 15 p. as it was when Matts decided to invest in a huge writing paper machine in the same site in 1969. and finally the bold investments in the writing paper industry and the construction of the third block during Matts Carlgren’s reign. As illustrated by the final words in Carl Kempe’s obituary from 1967. We asked how these rationalities influenced resource management at MoDo. This view was decisive both for Frans’s decision to invest heavily in Husum in 1917.: “You have to be bold. 2. these values were random and tied to the personal characteristics of individuals. Here we detect the entrepreneurial spirit that continued with the remarkable growth in sawmilling and the pulp industry during Frans Kempe’s reign. The “third block strategy” was commented by Matts Carlgren with the following words. 485). Hence. “Why limit an expansion to 50% of the present capacity when it could be a 100%?” (Svensk Papperstidning. the dominating role in the pulp and organic chemical industry during Carl Kempe’s reign. there are always limits to the scale possible and a balance between the scale chosen and the market demand. to what extent they could be combined. Dagens Nyheter. As illustrated. and how these rationalities were related to the interplay between family dynamics and contextual developments during MoDo’s history. However. MoDo’s choice has always been to go for size. Many have failed in this industry due to cautiousness. the guiding values reoccurred again and again. as shown in Fig. for example. (2010) identified as providers of continuity in family firms. In our attention-driven analyses of MoDo’s history we have identified issues and guiding values in which a tension between the financial and SEW rationalities have surfaced.

the fact that Carl Kempe was chosen as a successor to Frans. Frans Kempe being highly entrepreneurial leaders. exercising a dominant leadership style. it is not surprising that our analysis of the 1980s still identifies a lot of references to Frans’ and Carl’s management styles. We can thus talk about a high level of institutionalization. In the same way. The message in our case is that the guiding values have permeated decision making in MoDo over generations. An important determinant of this power is to what degree the values surface in the analyses of the history of decision making in the focal firm. and thus to the powerful guiding values of the firm. An answer to the question of why guiding values were able to gain this level of importance is however not answered. Selznick (1957) characterizes such institutionalizing processes as organizational characteristics becoming infused with value and cherished for their own sake.202 OLOF BRUNNINGE AND ANDERS MELANDER Four strategic issues: The investment in the Husum pulp mill in 1917 The buildup of systematic R&D activities in organic chemicals The start of the paper machine The “third in Husum in block” strategy 1972 in 1978 Five guiding values: • Autocratic leadership • Family control of the firm • Emphasis on R&D Downloaded by University of Toronto At 12:55 07 February 2016 (PT) • An entrepreneurial management perspective • An emphasis on economies of scale Fig. over time the values became institutionalized. it is important to discuss the constraining and enabling power of the identified values. Carl Kempe continued as a dominant chairman on the board in the period 1947 1965. 2. an issue often neglected in analyses of family firms. Guiding Values Related to Strategic Issues. despite his questionable track record as a bon vivant. was partly due to his business instinct. Thereafter he was succeeded by his brother Seth as chairman. Hence. but they also guided the selection of future leaders. They now applied to the organization as a whole. However. Succession practices pursued in MoDo surface as an important structural factor driving this institutionalization process. ensuring that the company’s guiding values were still alive in the mind of his successors. For instance. continuing the succession of guiding values for another eight years. Before we continue and examine the role of the guiding values.7 . Carl Kempe succeeded his father Frans in 1917. but Frans stayed on as chairman on the board for five years.

As a consequence a catch 22 situation emerged. The MoDo case highlights the fact that in family firms with spread ownership the question of what and whose SEW influences management choices becomes crucial. Matts Carlgren enforced both the enabling nature of the guiding values as he practiced entrepreneurial management when financing bold investments. Instead the last patriarch. The particular combination of guiding values became a successful lens in MoDo. the autocratic leadership and the entrepreneurial management perspective were more process oriented. at a time when the industry trend was rewarding owner restructurings to gain size and thereby a more apparent focus on financing. when he resisted some obvious strategic alternatives. The Kempe Carlgren family came to be characterized by two branches that partly had conflicting interests. the autocratic and supreme leader. we learn that the financial superiority of the firm gradually eroded after 1945. The enforcement of the autocratic leadership made the two dominating branches of the owning family unable to collaborate and revise other guiding values. This revision did not take place. We can also identify a division in more content. was unable or unwilling to question the guiding value of autocratic leadership. how management decisions were made. a lens that guided strategic choices over a long period. building on the R&D strength of the company and materializing in huge investments aiming at economies of scale. entrepreneurial decisions. Miller and Le Breton-Miller (2014) have addressed the heterogeneity of SEW.and processoriented values. the MoDo case offers some interesting additional insights. and outcomes. In this new industry climate. Matts Carlgren.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 203 When we take a closer look at the values that emerged and subsequently became institutionalized as guiding values. Moreover. Paternalism and family ownership on the other hand mirrored SEW considerations that also guided what strategic issues to be pursued and most important. Learning from MoDo‘s rise and fall we will emphasize two further dimensions of guiding values: the importance of the process nature of the guiding values and the constraining nature of guiding values. while. as well as the constraining side of the value of complete family control. there was eventually a need for a revision of the guiding values in MoDo. Looking back at the current debate and criticism concerning the SEW construct. In the MoDo case. the last . for example. The emphasis on R&D and the focus on economies of scale represent more content-oriented values. having various sources. types. What was probably even more important was that he. some of them were more linked to a SEW rationality while others mirrored a logic representing financial wealth. Financial wealth was achieved by bold.

to different family branches or even the SEW of a single individual. These guiding values can be both content and process oriented.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 204 OLOF BRUNNINGE AND ANDERS MELANDER owner-manager. 2003). 694). Sirmon & Hitt. while other family member’s SEW rationality was mainly driven by safeguarding family control of MoDo. Sciascia et al. They rather represent an equally important rationality for resource-management choices. Also the emphasis on a financial wealth rationality versus a SEW rationality may differ between different groups and individuals in the family. seemed to be driven by individual interests and commitments to his personal projects to a significant extent. SEW endowments are not merely a factor constraining financially rational resource management. (2011). CONCLUSIONS The aim of this chapter has been to understand the longevity of family firms by focusing on the management of resources from the perspective of financial and SEW rationalities. 2013. It is in these values that financial and SEW rationalities become manifested. The result from our explorative analyses of MoDo’s rise and fall can be summarized in the following points.. who urge for developing further understanding of “how family owners frame decisions with socialemotional wealth as a reference point” (2011.. varies in family firms. From his personal perspective. p. Salvato et al. The balancing process between the two rationalities is thus mirrored in the influence of guiding values on resource-management choices. From the MoDo case we propose that . 2014). • Family firms develop guiding values (cf. but rather the reference point of SEW might shift from the family. as previous models suggest (cf. that is. • Resource management in family firms must be holistically understood. Selznick. • The normative power in guiding values. 2010. This does not mean that the importance of SEW decreases with the firm age or generation in control (De Tienne & Chirico. as different guiding values reflect the financial and SEW rationalities to a different extent. the level of institutionalization. 1957) that institutionalize as the firm matures. taking the balancing of financial and SEW rationalities into account. hereby following Gomez-Mejia et al. there was eventually a SEW rationality behind his stubborn pursuit of the third block strategy and his diverse business venturing project.

The perspective can hopefully help overcome some of the shortcomings of existing resource-management models that put too much of a focus on a financially driven rationality only. in a situation where guiding values are no longer in line with the development of the industry context. We see the adding of this perspective with dual rationalities to the resource-management literature as the main contribution of our chapter. We believe that a SEW perspective can add more to the understanding of resource management in family firms. • Guiding values with a processual character are of specific importance in family firms as those values determine the management of decision making and influence in the long run. In multigenerational family firms with spread ownership. We therefore suggest that future research looks at dynamics arising between financial and SEW rationalities in other contexts. Of course our research is limited by the case and the specific empirical context chosen. Considering the important role of guiding values. our article demonstrates that the two rationalities influence resource management through a set of guiding values and that the effectiveness of these values changes with a changing industry context. • SEW is a heterogeneous construct and it is far from certain that a SEW rationality always offers clear guidance to management decisions. will enable or constrain the development of the firm. Specifically. it would also be interesting to see more empirical work on the . This eventually decides whether the governance structure. The MoDo case shows that financial and SEW rationalities can go hand in hand for extended periods of time. • Contextual changes determine to what extent guiding values can be effective in maximizing both financial and SEW outcomes. succession processes that ensure continuity through long and overlapping tenures by key decision makers result in deeply ingrained values. However. while being financially successful. safeguarding both financial success and socioemotional endowments. Financial and SEW thus stand for two different rationalities that coexist and sometimes compete in family firms. the conflict arising between the two rationalities may have fatal consequences for the firm. In addition. the family. even competing SEW rationalities within the family may complicate the picture. In the MoDo case. that is.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Family Firm Longevity and Resource Management 205 succession practices are highly determinative of the level of institutionalization of guiding values. the ownership consolidation of the industry restricted the possibility for maintaining absolute family control.

The Swedish industry context data includes more than 200 speeches. several international companies went bankrupt and were taken over by banks. Carlgren (Chairman of the board of MoDo.Downloaded by University of Toronto At 12:55 07 February 2016 (PT) 206 OLOF BRUNNINGE AND ANDERS MELANDER formation and longevity of such values in family businesses. this is not the case for SEW. and the United States were coded over the period 1846 2003. 1959). a member of the board since 1955 and Carl Kempe’s nephew. The quantitative studies currently dominating the family business field. B. According to Valeur (2000) and Boseaus (1949) MoDo was one of the leading companies in research and development at the time. p. We believe that through an in-depth qualitative study we have been able to shed some light on SEW as a heterogeneous phenomenon and call for more such studies in the future. (MD. SEW for one individual does not have to be so for his or her siblings. 6. 2010).). Finland. Some of the practitioners that discussed the alternatives in speeches and articles are Enstro¨m. We believe that there is a need to pay more attention to the heterogeneity of SEW(s) in family firms. 155ff. SCA. The Kreuger crash followed the death of Ivar Kreuger and hence the end of the Kreuger empire in 1932. as well as interviews with industry experts. SCPF. have problems in investigating this diversity as SEW and is often captured indirectly by overly simple and thus problematic measures (Miller & Le Breton-Miller. reviews of several trade magazines. 3. 1967). . Wohlfart. analysis of 514 meetings in trade associations. In Lamberg et al.620 strategic actions in 17 pulp and paper companies from Sweden. 2014). The complexity of the SEW construct is further increased by the different dimensions of SEW (Berrone et al. NOTES 1. 1979). Lyberg.. 7. The family alternative proposed by the Frans branch was Mats Carlgren. According to Valeur (2000) and Boseaus (1949) MoDo was one of the leading companies in research and development at the time. (Analyst. The strategic alternatives are extensively analyzed in Peterson (1996) and in Melander (1997. (MD. MoDo. and Sundblad (MD. Finally. 1968). Valeur reports that in 1947 MoDo’s R&D employed 74 out of which 11 held an academic degree. 285 annual reports. our research has empirically highlighted the diverse nature of SEW. Lyberg (1984) describe the succession process in detail and reveals that had to be a nonfamily mediator to reach a conclusion. While it is fairly obvious what financial wealth is. 2. Valeur reports that in 1947 MoDo’s R&D employed 74 out of which 11 held an academic degree. 5. 1959). As a result of the crash. In Brunninge and Melander (2013) this point is illustrated and elaborated. 4. 2.. Iggesund.

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The book ends with a company statement authored by the chairman of the board. and Relation to the Kempe Family Title of the Source Topic and Time Covered 1 Ahnlund (1917) Mo och Domsjo¨ verken: Deras a¨gare och utveckling intill 1873 MoDo’s development until the foundation 1873 2 Ga˚rdlund (1951). Technology researchers and Industry analyzers Teknisk Uppka¨ftighet Technological innovations in the Swedish pulp and paper industry.212 OLOF BRUNNINGE AND ANDERS MELANDER APPENDIX THE DATA ON MODO Downloaded by University of Toronto At 12:55 07 February 2016 (PT) The case of MoDo 1873 1990 is based on the following sources: • 22 manuscripts of speeches given by the CEO or the chairman of the board in the period 1945 1990. • Personal interviews with seven top management representatives (conducted in the period 1991 1995) and five interviews with three representatives from the two branches (“Seth” and “Frans”) of the owner family in 2012 2014. Two chapters are based on interviews with prominent researchers related to MoDo . Researcher in Economic History Mo och Domsjo¨ intill 1940: Den ekonomiska utvecklingen MoDos overall development 1873 1940 mainly from a financial perspective 3 Unger (1967) Carl Kempe: Den siste patriciern Biography on Carl Kempe (MD in MoDo 1917 1947) 4 Lyberg (1984). Publication Date. Researcher in Economic History MoDo 1940 1985 Company biography. MoDo Vandring i gamla kvarter. MD. • Annual reports on the period 1945 1995. employee 1943 1972. Name of Author. 1940 1985. Fra˚n Lustigknopp till 1959 1972 Ekliden Memoirs in which top management issues and succession issues in the Kempe family are described 5 Ga˚rdlund (1986). Matts Carlgren 6 Carlberg and Scholander (1989). Below we list the most prominent secondary sources used in the research process. • A review of the staff Magazine “MoDo Insikt” in the period 1960 1995.

MoDo 1982 1991 Memories from close collaborator to Matts Carlgren 1982 1991 11 Kempe (2006). Boken om Lotty Bruzelius Biography on Lotty Kempe and the Kempe family (the founder of the Kempe foundation) 1873 1936 . Phd thesis Thorough examination of MoDo’s industrial relations 1873 1940 9 Croon (2005). The views of all parties Rationaliteter i en strategisk involved in the realization if fo¨rva¨rvsprocess. Publication Date. Chief Operating Officer in R&D MoDo 1963 1976 Utveckling. The chairman of the Kempe foundation. A grandchild to Carl Kempe. Researcher Iggesundsaffa¨ren. Omva¨lvning. Fo¨rnyelse. A Frans Kempe relative Slutet pa˚ en familjedynasti. Researcher Mo och Domsjo¨ AB och arbetarorganisationerna until 1940. and Relation to the Kempe Family Title of the Source Topic and Time Covered 7 Ericson (1991). Grodor blir prinsar och tva¨rtom: en vandring i en industri och ett land i fo¨rvandling MoDos entire history described by a high-ranked employee 10 Kempe (2005). A Seth-Kempe relative) Fo¨rsvinnande spa˚r. (Margareta is married to Carl Kempe jr.213 Family Firm Longevity and Resource Management (Continued ) Downloaded by University of Toronto At 12:55 07 February 2016 (PT) Name of Author. Phd thesis the “third block” strategy are examined 8 Nordstro¨m (1993).