'We're trying desperately to hang on to that early successful formula of a very small company.' That remark was once made by a man working for the paper and packaging company, Jefferson Smurfit. Hanging on seems to have worked out nicely, thank you - Smurfit's formula stayed so successful that the group is now valued at £2 billion.
Only recently, Smurfit announced another of the large takeovers (this time in France) that have helped create Ireland's biggest multinational name after Guinness. The original Jefferson Smurfit, the founding father, developed that early successful recipe in a business belonging to his wife's family. Family was a vital ingredient of the formula: not least because the patriarch had four sons whose ability outstripped his own.
It's fashionable to ridicule the family business. It does, of course, represent unbridled nepotism, in which (to quote a famous line) 'the son also rises.' For every effective dynastic succession (Charles Forte to Rocco, Alan to John to David Sainsbury, etc), big business has seen many notorious hereditary flops. In smaller firms innumerable collapses show how often parents misplace their trust in incompetent offspring.
But non-family promotions can also be dismal failures. What family succession inherently provides is a bundle of attributes that every business needs, large or small: a focus of loyalty, an instinct to preserve and enlarge the inheritance for the next generation, and an innate pride in the name and reputation of the firm. A good family business doesn't know the word 'short-termism': it builds for the future.
At the same time, it never forgets past virtues. The Smurfit formula, according to that reminiscence, included this: 'We got our orders by camping out on doorsteps and keeping very, very close to customers.' Beginnings like that get built into the fabric of a company, and can still be seen clearly inside great empires like Marks & Spencer. Its founding genius, Simon Marks, would recognise features of its ethos and operations today.
The essence of M&S goes back even further, to Lord Marks' father, Michael. Once he'd fastened on the trading policy for his first barrow ('Don't ask the price, it's a penny'), the nascent chain depended on what's now known as buying to a price point. Suppliers had to deliver at well under a penny to yield Marks a profit. That launched the intimate supplier-store relationship which eventually created St.Michael - by all odds the world's most successful own-brand.
As at Smurfit, closeness to the customer, as well as the supplier, became an M&S trademark. But the smaller firm isn't only close to its customers: it's very, very close to its employees. These are two keystones of the latest management fashion. You seek to create highly satisfied customers by staying close, but to achieve that you must create highly satisfied employees. The difficulty, though, is to get close to hundreds, thousands, or tens of thousands of employees.
Large companies turn to expensive attitude surveys to get some idea of how their employees feel. Many of those asked don't reply to the questionnaire at all: and in Britain you're doing comparatively well if over half the answering employees express satisfaction - and never mind high satisfaction. The bosses of smaller firms can ask face-to-face: even though most wrongly dodge this opportunity, the good bosses still have a clear picture, individual by individual, of mood and morale.
More, they instinctively create the right environment. It's midway between what's known as Theory X, in which people are thought to respond only to carrot and stick, and Theory Y, which holds (correctly) that people naturally like to give of their best. You combine firmness with friendliness to ensure that your people...
1...know what they're supposed to be doing
2...are capable of doing it
3...are encouraged to succeed
4...get rewarded for their success
What should be second nature in smaller firms comes 'desperately' hard (to quote that Smurfit executive again) for larger. But another feature of good family firms helped Smurfit to preserve its virtues: the presence of uninhibited critics. As chairman Michael Smurfit, the business's prime mover, has observed, he's subject to review: 'Look, I have highly aggressive, successful and very rich brothers. They need watching, too.'
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