Family Business Fosters Long-Term Innovation
By Craig E. Aronoff, Ph.D.
Once again, apparently without realizing it, the academic Wall Street establishment has figured out that family businesses are best. This time Harvard Business School professor Clayton Christenson, writing in BusinessWeek, asks the question, “Why do smart, motivated, hardworking managers find it so difficult to innovate?” Answer: Because they erroneously believe their jobs are to “maximize shareholder value.”
Christenson, however, believes that management’s primary responsibility is not to satisfy investors and speculators, who now own shares for an average of 10 months, but to “maximize long-term value.” To fix the problem, he suggests: “Companies that are serious about serving patient capital might even consider changing how they are organized.” Three organizations are offered as having “demonstrated the ability to take advantage of disruptive change” and having “a different ownership structure from most public companies in the U.S. and Europe.” The structure involves privately owned conglomerates with public and private subsidiaries whose economic models are potentially disruptive to the parents’ model. These organizations are nimble, are innovative, sustain competitiveness and reward long-term investors.
The three examples are Tata Sons in India, Li-Fung in Hong Kong and Cox Enterprises in the United States. Christenson urges private-equity firms to learn from their example. What he fails to point out, however, is that all three are multigenerational family enterprises, with values and motivations that are not replicable by those who run money and make deals while raking fat fees from others’ money.
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