Monday, May 4, 2015

Longevity Factor #1: Strong Corporate Mission and Culture

The existence and deliberate transmittal of values and beliefs that form a strong corporate culture is considered a key survival factor by the old companies. In many of the old companies these values were developed by the founder and passed on through the generations. Similar to the idea of a “relatively fixed core ideology” identified by Collins and Porras in their book Built to Last, these values and beliefs function as the fundamental business guidelines for the firm and provide the core ideas around which members of the company identify. Most of the old companies have strong oral traditions they represent in sayings such as “When the store is open there’s always a Fabiano on the floor.” Or “The customer is always #1 – that means you call them by their name.” Or “We don’t play pricing games – we offer a good, first deal.” Some were simply common sayings such as “We follow the Golden Rule” or “Be fair and honest.”

The mere existence of a corporate credo or mission statement, however, is not a characteristic distinctive to old companies: Though 88 percent of the old companies surveyed had some sort of mission statement, so did 85 percent of younger firms. There are, however, some significant differences in the content of the old companies’ mission statements and in how they use this sense of purpose and values to manage the company and shape their corporate culture.

The old companies place more importance on relationships with their business partners, in their credos and also tend to include statements about the special technologies or skills that make their company unique. It is in the area of utilization of the company’s mission, however, that the old firms showed the most differentiation from other firms. The century-old companies score higher on every aspect of credo utilization, placing great emphasis on actually managing according to the credo. In other words, the old companies really live their mission statements – these aren’t just some words developed for their website because having a mission statement is currently a popular management practice. As the current owners of Burdine’s Five and Dime in Harrisville, West Virginia put it: “The store's philosophy remains just the same as it was when K.C. first opened its doors a century ago: treat each customer special while striving to maintain a friendly shopping experience. Today, every customer is greeted warmly, with our employees understanding that treating others with civility is more important than making a sale.” *

The old firms are also more intentional about sharing their credo with others, teaching it to employees as well as discussing it with customers and other business partners. The special values of the founders or other significant historical leaders of the businesses and their beliefs about how business should be conducted form a strong culture in the old companies, one that employees identify with – it simply becomes “the way things are done around here.” Woe to any manager who tries to cut corners or act contrary to the established values: employees in the old companies act as a sort of corporate anti-body that overcomes the potential infection.

Leaders of the old companies expressed a strong intention to carry on their mission and culture into the future: It was clear this isn’t just how the business was managed in the past and for today, but that a framework has been established for continuity into the future. As a current partner in the 185-year-old law firm Curtis, Mallet-Prevost, Colt & Mosle says: “Everyone sees themselves as trusted advisors to their clients, rather than big-shot attorneys, which is similar to how lawyers thought of themselves centuries ago. The firm isn’t trying to make the most money or become the largest company. There’s a commitment to continue what has come before.”

The importance of corporate culture was also seen in the way the old firms place more emphasis than younger companies on their brand identity. The old companies pay great attention to how their company or brand name is represented. They make sure there is consistency in the way the brand is used and want the brand to be prominent in their products, facilities, written materials, and wherever the company or its major offerings are represented. Name and reputation mean everything to these companies so they guard it carefully.

Though cultures in these companies are very strong, the specifics of the culture vary among the members of the corporate century club. There is, however, one common cultural aspect of the old companies: a conservative approach to managing finances. These firms are very reluctant to go into debt as a way of funding their business even if this means slower growth. (One leader recounted with glee how he had ignored the advice from a Lehman Brothers consultant that his firm was under-leveraged and that they should take on more debt.) This reluctance to take on debt, along with the practice of putting a priority on profitability over growth, results in a majority of companies over 100 years old being small- to medium-sized businesses.

These conservative financial practices also mean these companies tend to be very profitable. For instance, the average net profit for old Japanese companies studied was 5.5 percent. According to statistics from the Japan Ministry of Finance, the average profitability for all Japanese companies during the same period was 2.7 percent. Christian Stadler’s study of old European firms showed profit margins over time were more than 10 percent higher than comparison firms.

The old companies operate with a level of leanness and efficiency – one could say frugality – not often seen in younger firms. (This is one area where a common stereotype of old companies is actually true.) This frugality in running the business enables the company to set aside money in prosperous times in order to weather the lean years. This approach to financial management also means money is available to internally fund new opportunities when they arise, thus not having to rely on external sources of financing or having to convince others of the value of an initiative. The old companies are able to respond quickly, when necessary, to take advantage of opportunities they see as well as invest in innovations others may not see as viable. This approach to financial management is well described by Arie de Geus in The Living Company: “Long-lived companies were conservative in financing. They were frugal and did not risk their capital gratuitously. Having money in hand gave them flexibility and independence of action. They could pursue options that their competitors could not. They could grasp opportunities without first having to convince third-party financiers of their attractiveness.”

The benefit of this approach to managing finances is evident in the 125th anniversary video posted on brokerage and investment banking firm Stifel’s website: “While many firms faltered, our fiscal responsibility allowed us to flourish during the financial crisis of 2008. Not only did Stifel not require a government bailout, we were able to capitalize on opportunities and position ourselves for continued success.”

A fundamental objective of these firms is survival, and staying financially sound is a means to this end. But for these company leaders making a profit is not an end in itself: it is the means to sustain their business. Nick Benson of The John Stevens Shop in Newport, Rhode Island, stone carvers established in 1705 and still going strong 300 years later, says the business has survived for two reasons: He’s not concerned about making big bucks and he cares deeply about his work. “We don’t care about the money as much as we care about the product. I’m inspired by the legacy I’ve received.”

This is the profit paradox of these old companies: though they don’t define the purpose or mission of their company as making money, yet they are very profitable. In their book Built to Last, Collins  and Porras also described this different view of profits on the part of long-lived firms: “Profitability is a necessary condition for existence and a means to more important ends, but it is not the end it itself…..Profit is like oxygen, food, water, and blood for the body; they are not the point of life, but without them, there is not life.” As one CEO reminded me, profit is the result of doing well what they do as a company, not their goal.

Old companies talk about the purpose of their business in missional terms. Whether it's to make great places to work (office furniture manufacturer), enhance human life (pharmaceutical company), or provide a bit of sunshine to every customer's day (candy store), the purpose of these old companies is clear and meaningful.  They talk about their purpose all the time - with employees, with customers, with suppliers, their local community, academic researchers, and pretty much anyone who will listen. They love what they do and it shows.

* All quotations come from company websites except as indicated.

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