The Secrets of Corporate Longevity

In an age when Microsoft can pile up tens of billions in cash in a little more than two decades, one might well argue that firms should live fast and—having served their purpose—die young. But more and more theorists, including Arie de Geus, a former strategist for Royal Dutch Shell; Jerry Porras of Stanford University and James Collins, a well-known consultant, now argue that companies with staying power tend to be market-success stories, as well. In fact, when Collins and Porras teamed up to study 18 corporate centenarians, they found that the group collectively outperformed America’s stock market by a factor of 15 since 1926.

Longevity is, of course, a relative term. Autenrieder, a German brewery, is the oldest-known commercial establishment, having been founded in 1650, the same year in which Japan’s two longest-living, sake-makers Kaganoi and Yukawa were founded. The Dutch porcelain maker Royal Delft was established a few years later in 1653. America, too, has its share of 300-plus-year-old entities. Shirley Plantation,
the oldest active plantation in Virginia and one of the oldest family-owned businesses in North America, dates back to 1614.

In terms of oldest continuously operated businesses, the U.S. can cite Cigna (1792), State Street (1795), Crane & Co. (1801), DuPont (1802), Colgate (1806) and many more (see table, p. 5).

What accounts for these impressive lifespans? Achieving this degree of longevity “doesn’t happen by accident,” answers Mary Kier, CEO of Chicago-based search firm Cook Associates, who has written extensively on the subject. “It happens to companies that have character. It happens when owners or CEOs or chairmen know how to keep their composure, even in times of economic crisis, and how to invest their money wisely to sustain the long term. It happens when employees feel it is their company, too. They do what’s right all the time. If they do that, they have a better chance of longevity and sustainability.”

One of the keys at large, publicly traded companies like General Electric, Kier says, is the practice of identifying and grooming high-potential managers from within. “CEOs come from within and stay a long time,” she says. These annual systems of evaluating high potentials, also seen at Johnson & Johnson, IBM and other top public companies, are essential to building in durability for the company as a whole. “If you know that your future is well planned out and you are part of that planning, it certainly is going to be a sustaining factor,” Kier concludes.

Kier says she sees different longevity formulas in private versus public companies. “It’s a special formula with a family owned company,” she continues. “There is a spirit and almost a faith in wanting to do what’s right, not just for their own family and their ownership structure, but for the people who work for them. There is a soul that emanates from a family company when you realize you have a lot of people counting on you.”
That’s a philosophy embodied by Franklin Park, Illinois-based Bretford Manufacturing. Christopher Petrick’s grandfather founded the company in 1948, just after World War II. His father, David, next ran the company; but at age 48, he stepped back to become chairman of the board. In his place, he installed a non-family member as managing director, while he waited to see if his son, Chris, would be able to take the job.

Three years ago, Chris, after working his way up the ranks, became CEO of the privately held company, which sells tens of millions of dollars worth of technology-compatible furniture for schools and businesses each year and employs 350 people. Now, it’s up to the 46-year-old to continue building the company and hopefully keeping it alive for the next generation. He knows history isn’t kind to third-generation, family-business leaders, who often aren’t as committed or as successful as their forebearers. “Third generations blow it,” Petrick sighs. “That’s been hanging over my head since the day I started.”

The foundation of Chris Petrick’s strategy to endure is stunningly simple: “by doing the right thing.” Bretford makes 95 percent of its products in America and is certified as a carbon-neutral company. It offers 12-year guarantees for its products like audiovisual trays and computer work stations—far longer than most of its competitors—and conducts rigorous testing. “A lot of the companies we compete with don’t take the time to make sure their product is completely safe,” Petrick says. “They’ll do everything to make it look like they do; but in the end, they don’t. We do it because it’s the right thing to do. We do the environmental stuff and we manufacture in the U.S. because those are the right things to do. If you’re trying to do the right thing, most of the time, people will honor that and respect it and make a decision to buy our products.”

Not all of today’s CEOs think about the longevity of their companies. Probably a majority—certainly in publicly traded companies—are squarely focused on quarterly earnings and realize that their job tenures will last a few, short years, at best. And families can become complacent and allow their products to grow stale or succumb to feuds that destroy their businesses. Nevertheless, far-sighted CEOs exist in family owned companies, in publicly traded companies where families own minority stakes and in some large publicly traded companies where the family role has diminished or never existed, such as Corning.

Structure Plays a Part
Michael E. Werner, president and CEO of the North American division of Taiwan-based Globe Union Group, a $700 million a year, publicly traded maker of plumbing equipment, argues that the companies with the best shot at longevity manage to combine the best family values with the realities of having at least some shares traded publicly.

“I’m a firm believer that if a senior-management team thinks about the future and about stewardship, almost doing it with a servant type of mentality, the company will prosper for a long time,” says Werner, who is based in Chicago and who previously ran his family’s business before selling it. “The best case is when you can couple that with the high-performance expectations of a public company. We want to combine the best of both worlds. In a public company, you can’t become complacent because you’ve always got people looking over your shoulder challenging you.”

It turns out that how you run your company and manage your family are both essential to pulling o a generational transition and thus, achieve longevity. Barry R. Sloane, 59, president and CEO of Century Bank in Medford, Mass., is contending with how a family-dominated but publicly traded fi rm builds its core values into its culture and ultimately decides whether to pass the business to a third generation. His father, Marshall M. Sloane, founded the bank 45 years ago and is now 88. He still comes to work every weekday as chairman. Barry worked outside the family business for 19 years but returned six years ago to become CEO. His sister, Linda Sloane Kay, is executive vice president.

Between them, Barry and Linda have fi ve children, but none are involved in working for the bank yet. It was Marshall Sloane who decided in 1987 to mimic the way the Ford family structured its holdings in Ford Motor and took the bank public on NASDAQ with two classes of shares, A and B. The public owns A shares but have no vote. The family owns 90 percent of the B shares, and therefore dominates any vote. “It was an enormously important, strategic decision because it allowed us to focus on the long term and not be obsessed with quarter to quarter performance, even though we are,” says Barry. “But strategically, we can look at the long term.” The bank, with $3.5 billion in assets, is growing strongly and has enjoyed record profi ts for four years in a row.

When a customer calls the bank, she hears a recorded message that thanks her for calling “our family’s bank and yours.” In an era when big banks have taken over so much of the industry and have lost any personal connection with their customers, Century Bank seeks to differentiate itself by emphasizing its family values and personal touch. “This is our bank,” says Sloane. “That’s a good thing. It’s yours, too, now. We want you to feel that way. We would never sell a product to a customer that our family wouldn’t buy.” No tricky instruments, such as reverse mortgages, subprime loans or variable annuities. “We don’t believe in those things,” adds Sloane, who approves every loan the bank makes.

The family values come through, also because Sloane wants to pay his people well, support the communities where his bank has branches and contribute to local political candidates—not to mention satisfying shareholders. “It’s all about doing the right thing,” he says, echoing the view of other longevity-minded CEOs.

Sister Linda’s two children are older and have migrated to New York City where they are involved in different careers. Barry’s three sons are only 15, 14 and 11 years old. However, the family has established policies that will govern whether any of the children work at the bank. “We have quite specific guidelines,” Sloane says. “Any member of the family must have a master’s degree in business or an allied field and they must have a minimum of five years working experience in an allied field away from here. You must have those experiences elsewhere to manage this legacy.”

The way Sloane and his wife, who is a scientist and teacher, manage their home life seems inextricably linked to the issue of generational transition at the bank. “In my house, the kids’ first responsibility is their academic performance,” Sloane explains. “We expect only the best performance from my children. They have to earn the things they have, whether it’s a computer game or a new basketball. It has to come with achievement.  Hopefully, they will always connect achievement with reward.”

The boys are assigned household chores and they make deals with their parents that link their academic performance with where they get to go to summer camp. In addition, the family shops a great deal on Walmart.com, where prices are rock bottom. “When we go shopping, we’re bargain shoppers,” Sloane says. “In our family, we hate to waste.” All of which may create the next generation of leadership at Century Bank, helping it live up to its name.

Corning: Consistency at Work
It is possible for the CEOs of publicly traded companies to take the long view, even if the founding family is no longer involved in the business. That seems to be the case at Corning, which was founded in 1851 by Amory Houghton, Sr. Shares were controlled completely by the family until after World War II, when the company issued the first shares to outsiders in 1947.

The percentage of shares held by outsiders kept increasing over the decades, even as the Houghton family remained active in management. The company survived the vicissitudes of many business cycles, such as the boom-and-bust of fiberoptic cable, which was its major product when the market crashed in 2001. James Houghton, a family member who had stepped back from the business and was serving on the board, returned to the CEO role after the telecommunications meltdown to guide the company back onto a winning path. But he has now been retired for 10 years and no family member is involved in the business.

Moreover, with 1.5 billion shares outstanding, the Houghtons are no longer considered major investors, according to standards set by the SEC. Yet, Wendell P. Weeks, chairman, CEO and president of the company today, argues that it is his job and the job of everyone at Corning to manage the company in a way that it can survive another 160 years.

“Our goal is not peak performance during our brief time at the helm of this great company but rather sustainable performance,” Weeks told shareholders in May. That often means the company leans against the wishes of Wall Street, for example, by insisting on a hefty research and development budget when many financial analysts would like to see those dollars flow to the bottom line. “We’re part of a values-based culture where how we do things is just as important as what we accomplish,” Weeks said. “We’re here because we define Corning by something other than our stock price or what the media says about us.”

It’s more than hollow rhetoric. Corning has consistently managed itself for the long-term, in part because it knows that the town of Corning in upstate New York and nearby towns, as well, depend on the company for economic survival.

Weeks’ formula for Corning’s longevity—being a values-based culture that seeks sustainable performance—is similar to what many family-owned companies seek to achieve. It proves that publicly traded companies can, in fact, play for the long term.

The bottom line: Ensuring that a company endures is not a sudden decision. It takes meticulous long-term planning. And CEOs, whether family members or not, must manage the day-to-day business as a sustainable legacy.

Read more: Longevity and the Family Business: Tricky Transitions