General Electric’s business has achieved exceptional performance throughout the years
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Marconi, Warner-Lambert, BellSouth, Lehman Brothers, Cadbury, Rowntree, Mannesmann, Aventis — the rate at which familiar corporate names are disappearing or losing their independence has speeded up, driven by deregulation, competition from emerging markets and technological change.

Business historian Leslie Hannah, a visiting professor at London School of Economics, examined 100 companies that were the world’s largest in 1912. By 1995, 49 had ceased to exist — five had gone bankrupt, six had been nationalised and 38 had been taken over.

In his study, published in 1999, Hannah calculated that the “half-life” of big companies — that is, the time taken to die by half of the 1912 giants — was more than 80 years. Today, he reckons “it is probably nearer 30”, marking a return to the pattern of the 19th and early 20th centuries, when corporate longevity was low.

Hannah adds: “There was a heyday of the large corporation between the 1920s and 1960s, which misled people into thinking that those giants could last forever.” In that period, tariff barriers and stronger patent protection helped keep competitive pressures at bay.

This raises the issue of whether certain types of company or methods of governance are more likely to achieve lasting success than others.

Do family businesses, as is often suggested, have a longer-term focus than public companies with dispersed shareholdings? Are co-operatives, employee-owned companies and social enterprises — which have attracted attention since the financial crisis for their supposed stability — more likely to endure? What about partnerships, the traditional model in professional services?

“Structures evolve, it’s all part of stimulating progress,” says Jim Collins, author of books including Built to Last and Good to Great. “They change as companies grow. Structure at one size may not be appropriate at a different size.”

Disney’s vision statement has been “to make people happy”

In Built to Last, Collins and co-author Jerry Porras identified 18 “visionary” companies that achieved exceptional performance and had a distinctive impact in the long run — including American Express, General Electric and Walmart — and contrasted each with a less successful rival.

“There were lots of different types of structures. Some were decentralised, some were centralised. Some were operating in a lot of autonomous units while others were taking one big thing and making it bigger and bigger,” Collins says.

He identifies principles that, in his view, apply across types of enterprise independent of industry, era and technology. Enduring companies have founders who build visionary organisations that outlast them, like Steve Jobs at Apple. They have a core purpose beyond making money. Disney’s aim, for example, is to make people happy. Lasting companies preserve their core values while stimulating progress through innovation.

Collins has been criticised for deriving timeless principles from what may be transient success. Several companies in Built to Last later stumbled. But, he says: “Great companies can go through episodes of great difficulty and yet still come back.” IBM, the technology giant that nearly died in the 1990s, fits that category.

Other theorists put longevity down to luck: markets change faster than companies are able to adapt. Collins concluded in Great by Choice that it was not luck that made the difference but “return on luck”: successful ones made the most of their breaks and turned disasters to advantage.

Some of the world’s oldest businesses are family owned, such as Nishiyama Onsen Keiunkan, a Japanese hot spring bathing house and inn founded in 705, run by 52 generations of the same family, or Italian gun manufacturer Beretta, family owned since 1526. According to a Bank of Korea report in 2008 covering 41 countries, there were 5,586 companies older than 200 years. Of these, 3,146 were located in Japan, 837 in Germany, 222 in the Netherlands and 196 in France.

“The understanding so far in our field is that not only do family-controlled companies perform significantly better than non-family controlled companies — that has been shown in many studies. We also believe they last longer,” says John Davis, a Harvard Business School professor who heads the Cambridge Institute for Family Enterprise.

He says family groups tend to be more united than dispersed, anonymous owners and more concerned about preserving their legacy than just making money. Financial conservatism helps them survive downturns and means they have cash to invest in new areas.

Many family businesses, though, do not last beyond the second or third generation. A study by Stanford University, Harvard Business School and London School of Economics found that those that hand on the business to a family member, usually the eldest son, perform less well than those that appoint professional managers from outside.

The Co-operative Group, successor to the Rochdale Pioneers almost collapsed in 2013

Co-operatives and employee-owned businesses are often praised for resilience: shared ownership can give their members a sense of common purpose. There are 1,926 co-ops in 65 countries with a combined turnover of $2.6bn, according to the International Co-operative Alliance. Co-operatives UK, a body representing the sector, says co-ops are twice as likely to survive their first five years as other businesses.

They are not invulnerable, though. The Co-operative Group, successor to the Rochdale Pioneers who began the movement in 1844, almost collapsed in 2013 when a £1.5bn black hole was found in the accounts of its bank.

One type of benevolent business that achieved success in Britain in the 18th and 19th centuries was companies created by Quakers. As nonconformists they were excluded from established professions, so they built businesses in sectors such as chocolate, drugs and banking. “They had a reputation for honesty,” says James Foreman-Peck, professor at Cardiff Business School. Only a few survive today, however, including Barclays and Lloyds Banking Group. These were accused of losing touch with their ethical Quaker origins when they were fined for rigging the Libor interest rate.

Partnerships, the dominant model in professional services such as law and accountancy since the 19th century, in theory might also foster a long-term approach. When partners share unlimited personal liability for the actions of colleagues, it binds them to a common purpose.

The model has eroded, however, partly because firms needed more capital as they grew. The Big Bang of financial deregulation in 1986 wiped out stockbroking partnerships in the City of London. By the turn of the century, 32 of the world’s 50 largest consulting firms were publicly quoted. Many law and accountancy firms in the US and UK are now limited liability partnerships. The Big Four accountants — Deloitte, PwC, EY and KPMG — trace their origins to the mid-19th century, but 30 years ago they were the Big Eight.

What of the future for corporations? Richard Foster, a Yale University management professor, calculates that in the 1920s US companies lasted on the S&P index for about 65 years on average. Today, that is down to 18 years and he thinks it could eventually fall to 10.

Foster believes companies in sectors such as energy, transport, food and communications may have a better chance of surviving than others. He adds: “The very best operators, who are the most efficient and make best use of capital, will last the longest.”

Creative destruction may be good for an economy, but no company wants to die. Achieving lasting success, though, looks harder than ever.

Copyright The Financial Times Limited 2017. All rights reserved.
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