Winthrop Group

In "Does Family History Matter?", Winthrop Senior Consultant Heidi Druckemiller discusses the value, meaning, and process of family history, arguing that a family's legacy can provide a powerful sense of purpose across generations. Her original article is featured in the new book, Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask (Wiley Finance, November 2018), which brings together "a compendium of knowledge from experts around the globe and across disciplines" to provide "a definitive resource of practical solutions to the important questions of family and wealth from the best minds in the world." At Winthrop, Ms. Druckemiller, works closely with individuals, families, and leading organizations to help them capture and communicate their past to shape moral purpose and inform strategic decision-making. 

https://wealthofwisdombook.com/podcast/episode-3/

Whether from stories passed down by their grandparents or from genealogical research conducted by an aunt, many people believe that they have some sense of where they come from. Often, however, there are gaps, inconsistencies, or contradictions in the story that can prompt questions. Did things really happen that way? Why were those decisions made? And, perhaps most importantly, what does it all mean?

These types of questions are often the starting point for professional family history research. That said, it is also important to recognize just how powerful a family story can be. More than a series of anecdotes or a family tree, a properly investigated and authentic family story can have a practical, wide-reaching impact. Again and again, research on happy, functional, and cohesive families has proven that the one thing they all have in common is their own strong family narrative. Or, to repurpose Tolstoy’s old adage, every unhappy family may be unhappy in its own way, but all happy families have a connection to a shared story.

For families facing generational change, this can be doubly important. In a recent report by the Economist Intelligence Unit, researchers found that “40 percent of family businesses globally will hand over the reins to a new generation in the next five years.” Using family history research to direct philanthropic giving is a wonderful way to ensure that younger generations will preserve and maintain the family's legacy in the future.

What this looks like in practice can vary considerably. Every family’s story is unique, and it can shape their philanthropic interests in profound and unexpected ways. For example:

•  A man discovered that he was the carrier of a hereditary genetic disease and learned about how his ancestors had coped with the same disorder. He now gives to several research initiatives that aim to develop a cure for the disease, which has been a part of his family’s shared, generational struggle. 
• An extended family with deep roots in the American South was surprised to discover a common ancestor who had openly opposed the Southern cause during the Civil War. Inspired by this ancestor’s unique story, the family made a significant joint gift to a prominent national institution to support new scholarship on the Civil War.
• Sisters were moved when they learned that their maternal ancestors had immigrated to the United States from Cuba as refugees in the 1960s. They now support refugee aid around the world and make trips abroad to publicly advocate for this cause.
• A woman learned that she had a great uncle who shared her passion for the culture of Australian aboriginal tribes. Previously unaware of this relative, the woman had supported causes related to indigenous aboriginal peoples for years. When she uncovered her great uncle’s drawings of aborigine life in the archives of a prominent historical society, she felt a powerful connection to the past that both validated and renewed her philanthropic commitments.

The idea that a family’s past can have meaning in contemporary philanthropy is nothing new. Today, we uncover family histories by conducting oral history interviews and research and analysis. Family history takes many different forms — one family may be interested in publishing a book, whereas another might benefit from creating interactive and digital media for next-generation family members — but the outcome for philanthropy is the same. Whether to honor a legacy, sustain a tradition, or address a wrong, family history allows families and individuals to give to causes and organizations that strengthen the family story.

     Winthrop’s ability to identify risks and challenges related to mass digitization is built on a familiarity with archival practices and our experience managing digital collections.  We have learned, for example, that short-term solutions may not provide long-term benefits.  Every project benefits from collaboration between stakeholders familiar with collections, procedures, network architecture and mission.  By drawing on this internal knowledge, a multi-step process can be implemented so digitization projects are successful, an effective content management system is selected and installed, and efficient workflows are established.  These steps include:

• creating effective use cases
• determining technical specifications
• outlining functional requirements
• working with IT and Legal Counsel to recognize information security requirements.

     To be useful, digital assets must be captured at high-resolution, arranged and described accurately and consistently, managed reliably and made accessible.  Decisions made in today’s information environment, however, may need to be revisited regularly.  To avoid mistakes, there are many factors to consider when preparing to undertake a cost-effective and efficient mass digitization project.  Consider, for example, that:

• Digital surrogates are a representation, but not a replacement for originals.
• Mass digitization may increase an institution’s exposure and risk.
• Digitization does not necessarily make documents text-searchable.
• Metadata is used to describe and find assets, and metadata embedded in files offers additional protection against unauthorized usage or access.
• Access is not preservation, though it can serve many functions.
• Many of yesterday’s and today’s file formats are at risk of obsolescence.
• Archival masters must accommodate future migrations and technological innovations.
• Failure rates of storage media (magnetic and optical) increase significantly over time.

     In an ideal world, institutions would create digital masters from hard copy and analog sources, provide immediate online access to digital assets, and preserve their digital resources in stable formats forever.  In the real world, however, as technologies, requirements, standards, and formats change, there are many risks and high costs associated with mass digitization.  We have learned that a sound and realistic digitization strategy can provide measurable results and offer scalable solutions.  Otherwise, the payoff will be minimal and costs will be prohibitive. 

    Contact us to avoid these pitfalls and prepare better for your next digitization project and in our next post, we will examine the specific work elements associated with these four steps. 

On August 1 Uber announced that it is selling its Chinese brand and operations to Didi Chuxing for $1 billion, its annual burn rate in that market, in exchange for a 20% stake in the local competitor. And that the two companies’ CEOs, Travis Kalanick and Cheng Wei, would take seats on each other’s boards.

While the deal triggered a flurry of articles, they mostly have repeated the few facts that are known so far, with a few variations. At the company level there is general agreement that the merger for (near) monopoly will benefit both Uber and Didi Chuxing by increasing the profit pool in the Chinese ride-hailing market, but there’s some disagreement on whether this was Uber’s plan from the beginning. And at the country level, some have averred that this is yet another illustration of Chinese uniqueness, at least as far as U.S. tech companies are concerned.

Rather than rehashing these points, I want to take a broader perspective and use the Uber-Didi deal to reflect more broadly on platform companies and globalization. “Platforms” as a business concept have been traced back as far as 500 years, but the surge in their popularity is much more recent and reflects in no small measure their eye-popping valuations. Thus, the Center for Global Enterprise has identified 176 platform companies globally with a combined valuation in the excess of $4 trillion, including the five most valuable publicly held U.S. companies as of August 1 (Apple, Alphabet, Microsoft, Amazon, and Facebook).

To read his article in the Harvard Business Review, click here.

Authenticity matters now more than ever. It is no longer enough to be the loudest or even the smartest in the room to succeed. Today, many of the strongest leaders look for sources of authenticity to guide content and strategy for their organizations. Authenticity creates lasting value that can promote trust among senior constituencies, rank-and-file employees, and external stakeholders alike. And it can be the key to a successful career.

Fortunately for many leaders, organizations are already in possession of an untapped source of authenticity: their own history.

History is a source of competitive advantage

History can clarify an organization’s reason for being and fundamental underlying principles. It can also provide an organization with genuine insights that can serve as the basis for distinctive solutions to real-world issues. History is one of the few areas that is intrinsically authentic, precisely because it actually happened.

More and more, we have found a correlation between leaders and organizations that are historically-minded and those that pursue thoughtful and effective content and communications strategies.

Consider the strategic consultancy, McKinsey & Company. At key moments in its growth from a small partnership into a global network of thousands of consultants, McKinsey deliberately looked inward, to its own history, for guidance. “We believe it is essential for every one of our partners and colleagues to understand our history and how our values were shaped over time,” McKinsey’s global managing director, Dominic Barton, told us.

Recognizing that history could be an authentic source of competitive advantage, the firm made its legacy central to the learning and development of rising consultants. Here, the quality of the content was crucial.

The need for “deep content”

Even the most historically-minded organization is unlikely to derive real value from its history if it relies on generic content. What do we mean by “generic content”?  Think of standard “about us” website content or the “balloons and fireworks” of a corporate anniversary celebration. This type of history often has little impact – and, at its worst, it can even be counterproductive.

When the fireworks end, top leaders look for deep historical content that is authoritative, sometimes provocative, and authentic. In 2011, when the global investment firm Dimensional Fund Advisors approached its 30th anniversary, the firm’s leadership team was deeply interested in ensuring that the next generation of leaders recognized the significance of key decisions that had helped to shape distinct guiding principles for the firm. That these principles did not exist from the start was part of the point.

Rather than simply celebrating the firm’s significant success, the firm produced a rigorous history. The narrative detailed early decision making and the characteristics that had made the firm distinct in a crowded marketplace. Packed with the complex contradictions and contingency of the past, this history’s authenticity made it meaningful for stakeholders. It is still used with new hires, rising leaders, and in an array of internal meetings and programs.

History can be a foundation for engagement across platforms

Leaders who appreciate the value of authentic history now have new opportunities to engage stakeholders across a multitude of content platforms. While we continue to believe in the value of print media for some audiences, today, a book is often just the beginning.

At the time of the 2010 acquisition of British confectioner Cadbury by Kraft Foods, many observers feared that the merger would end in chaos. Senior executives at Kraft launched a deep-dive into company archives and found historical content that served as the basis for a robust communications strategy that included press releases, executive speeches, employee training sessions, and a dedicated intranet site, “Coming Together.” In very real ways, history helped the merger proceed more smoothly than any previous acquisition.

For communication leaders, history represents a unique opportunity to generate value from content that is inherently authentic. History is also one of the few areas in which many organizations already possess significant, underutilized assets. This can be a significant advantage: for future career development, the past can make all the difference.

5 Tips for engaging with history to strengthen your career

Leaders interested in leveraging an organization’s history to create authentic value should:

• Take stock of untapped resources. Before beginning a major project or initiative, make sure that you have not overlooked relevant documents, records, and other materials. Forgotten store rooms and hard drives can be a treasure trove of content that can provide context and direction.
• Be aware of how the organization is already impacted by its history. Every organization is impacted by its history, whether it is aware of it or not. Understanding how and why an organization is impacted by its history is crucial to the development of a relevant engagement with that history.
• Ask experienced leaders, employees, and other stakeholders about the backstory. The most effective leaders ask questions about past struggles and outcomes in order to approach a situation armed with a strong sense of institutional memory. Don’t be afraid to dig deep. Asking the right questions can help to clarify how the nuances and contradictions of history can lead to an authentic approach.
• Document the organization’s real history. To put history to work, it is not enough to rely on generalizations or vague stories of the past; top leaders embrace the messiness of history. They use “deep content” to derive real, strategic value for organizations and individuals.
• Be prepared to deploy history across multiple content platforms. Stay attuned to opportunities to use traditional and new media to engage with diverse stakeholders. Interest groups and generations digest content differently; ensure that you are delivering history that feels as authentic as it is.

Based in New York City, the Citi Center for Culture was formed in 2009 as a knowledge center for Citi's history and culture. Founded in 1812 as the City Bank of New York, a local merchant bank, today Citi is a global bank with a philosophy of “progress informed by the past and inspired by the future.” As the custodian of Citi’s corporate archive, the Center for Culture supports this vision by preserving the bank’s records and connecting the past to the present. We provide access to the bank’s past and recent history to Citi’s 250,000 employees located in over 100 countries across over 17,000 lines of business. The Center, a corporate function, includes Heritage Services – an integrated team of The Winthrop Group and Citi archivists who manage Citi’s archive or Heritage Collection – and the Department of Fine Art, which manages the bank’s art collection. 

To read the full article writen by Winthrop's Shira Bistricer go to the SAA website here.

Professor Govindarajan rightly notes in "Let Go of What Made Your Company Great", just how contemporary businesses mindsets can become “embedded in systems, structures, processes, and cultures that are self-perpetuating,” making it difficult for an organization to innovate and explore new territory. Within organizations that find themselves stuck in this type of systemic rut, managers are often extremely comfortable with the types of established practices that contributed to past victories. What is an organization to do?

Look to history.

History can provide guidance in two ways: first, by demonstrating that although contemporary circumstances may be new, the organization has undergone major changes in the past; and second, by showing how past practices were rooted in a context that no longer applies.

The organization has changed in the past. In our work with a global management consultancy, we documented the firm’s history to better understand how the consultancy had navigated past economic and reputational shocks. Only by understanding how and why the firm had evolved, senior members of the firm reasoned, could its partners and associates live up to the high standards they had inherited. The firm had grown from humble, Depression-era origins into one of the most influential professional service firms in the world. In the process, it had also survived several near-death experiences.

This private history documented several key turning points, when the firm had been forced to grapple with issues of leadership, knowledge management, and the very fine line between aspiration and hubris. The firm’s values were, in fact, the result of change. They had been formed, shaped, and tested in moments of crisis. Over time, the consultancy had grown more diverse and highly decentralized – shifts in structure and process that helped to empower success and create its reputation. By taking these past changes seriously, the organization was better equipped to adapt current practices for the future.

The historical context has changed. On the second issue – that of recognizing shifting circumstances – consider the case of Pendleton Woolen Mills. This iconic and family-owned American company was founded in 1909 and can trace its origins back six generations to the arrival of Thomas Kay in Oregon in 1863 – just four years after Oregon became a U.S. state. Based on his work with Pendleton, Winthrop historian and archivist Richard Hobbs points out that Pendleton has accommodated changing historical circumstances by operating according to a set of core principles that include promoting alliances with Native American tribes, operating with a vertically integrated corporate structure, producing quality merchandise, adhering to a strong “Golden Rule” value system, and remaining committed to fiscal conservatism.

For more than a century, Pendleton remained true to its corporate identity, while adapting to dramatic changes in the U.S. economy and society. In the 1990s, for example, the consolidation of department stores and increased overseas competition led Pendleton to shift business to retail stores, catalogs, and the Internet. The company’s commitment to reciprocal Native American tribal partnerships evolved to include support for the American Indian College Fund and the use of blanket designs by tribal artists. It pursued new corporate collaborations– with Nike, Vans, Hurley, and Adidas, for example – precisely because Pendleton recognized the need for continual, thoughtful evolution in the face of ever-changing changing circumstances. In very real ways, an appreciation of changing historical circumstances contributed to Pendleton’s survival.   

The history of Pendleton Woolen Mills provides a case study of how an understanding of a company’s history, culture, and ownership has contributed to the firm’s survival as an entirely US-based operation for more than a century, long after most of Pendleton’s competitors either failed or moved their operations overseas.  An iconic American company founded in 1909, Pendleton is family owned and managed, and traces its roots back six generations to the arrival of Thomas Kay in Oregon in 1863.

Five distinctive features of the company’s culture are interwoven throughout its history: (1) Alliance with Native American tribes and use of native-inspired designs; (2) corporate organization based on vertically integrated structure, from raw wool to finished retail products—combined with thorough understanding of the woolen industry; (3) a commitment to making and selling premium quality merchandise; (4) ownership’s value system centered on loyalty and the “Golden Rule”; and (5) fiscal conservatism.  These features form the core of the corporate identity—a  platform of constraints that have served the company well for 107 years.  Their evolution in response to changing economic conditions and historical events is an instructive story of innovation, adaptation, and success.

Here is a presentation recently made at the Business History Conference that examines how these 5 points have reflected and influenced the history of the 107 year old company.  Of particular interest are more than two dozen photos that illustrate Pendleton's heritage materials, designs, and contemporary fashion initiatives.

Barriers to entry are withering, innovations are easily copied, and disruption is everywhere. But is business really so competitive - not in a few prominent industries, but in the economy as a whole? According to John T. Landry, a Winthrop senior consultant and Harvard Business Review contributing editor, the macro numbers tell a different story. 

To read the HBR blog post, click here
 

Winthrop Lead Archivist Sam Markham researched and wrote a blog post on behalf of Winthrop client, the Municipal Art Society of New York (MAS) for the recent 50th anniversary of the passage of the Landmarks Law.  This legislation gave legal authority to the NYC Landmarks Preservation Commission (LPC) to protect and preserve buildings and neighborhoods of cultural importance in New York City.  Several months ago Mr. Markham contacted WNYC Archivist, Andy Lanset, about a MAS radio program called "The Livable City," that ran on WNYC in the 1970s.  While Mr. Lanset found no surviving recordings of "The Livable City", he did locate and subsequently digitize from the Municiple Archives several Landmarks Preservation Commission reel-to-reel tapes from the 1960s.  One of these, a 1964 interview with the first LPC commissioner, Geoffrey Platt, provided an excellent platform to discuss the instrumental advocacy and preservation work of MAS in the decades before the 1965 Landmarks Law.  To read the blog post and listen to the interview click here.

For many CEOs, the past is a powerful tool in public relations, marketing, and branding, where heritage resources become points of leverage over the competition. Historical materials are the building blocks; especially valuable are historical photographs, slogans, and logos. These reinforce messages about the company’s longevity, stability, integrity, and tradition, all of which are especially important in difficult financial times.

Historical information assets directly enhance and protect the company’s brand identity, and they support re-branding initiatives by highlighting historic themes in advertising, e.g., catalogs, brochures, web posts, Facebook, Twitter, etc. They also document the nature and evolution of a company’s community relations.

During the last dozen years, branding has appeared everywhere, so we tend to think of it as “modern.” Not so. Brands have been with us since our earliest civilizations as a means of identifying ownership. In the late 19th century, many consumer product companies like Procter & Gamble made concerted efforts to establish recognizable brands. Today, we view branding as a facet of marketing, roughly equivalent to a name, slogan, logo, or design associated with an organization and/or product.

It is worth a moment to distinguish between "heritage branding" and "brand legacy." While "brand legacy" describes a status for a company or organization, "heritage branding" is an action we can take with that legacy, either using it to underscore the firm's heritage image, or to re-invent and transform the brand.

Heritage branding is a potent way to create that crucial emotional bond between company and customer. The basic ingredients of identity and ownership conveyed in a brand are dramatically enhanced to include attractive and desirable things like quality, integrity, honesty, and dependability. People prefer products from a company that has a well-defined image, a clear history and mission—a company that offers a message that they can relate to, value, and cherish. Historical materials are uniquely qualified to deliver those attributes to branding and re-branding.

In recent years, there have been some notable revivals of legacy brands using heritage branding to support the reintroduction of products to the marketplace. Coca-Cola brought back Fresca after a four-decade absence. Other examples include Hyatt House, Ovaltine, the TV show “Hawaii Five-0,” the Volkswagen Beetle, and Jeep’s Wagoneer, to name a few.

The fashion industry has produced some striking examples of heritage branding. In the Pacific Northwest, Pendleton Woolen Mills, the Portland, Oregon-based wool company brand associated with the Beach Boys’ plaid shirts, Native American blankets, and outdoor wear, is energetically mining its company archives for new designs that are riding high on the current wave of heritage chic and avant-garde clothing. In 2011, Pendleton introduced The Portland Collection and in the Fall of 2013 launched its Thomas Kay Collection.

“Heritage with contemporary attitude,” is how we phrase it, says Kathy Monaghan, Branding Marketing Manager for Pendleton.  “We’re using iconic textiles to stay current with a bold design statement.”  In the process, Pendleton is attracting a new and younger generation of customers and beginning to transform the traditional image of its iconic American brand.

The power of branding when combined with history is compelling, according to Paul Bloom, Professor of Psychology at Yale University.  As humans and consumers, notes Bloom, “we are obsessed with origin and history … things get value because of their history.”  In today’s marketplace where “brand over brain” dynamics rule, heritage branding remains one of the most potent tools available to corporate executives.

For multi-generational family owned businesses, the past represents something beyond marketing opportunities.  Pendleton’s President, C. M. (Mort) Bishop III, emphasizes, “Our heritage is a lot more than a simple matter of using historical materials in marketing and branding for the sake of profit.  It’s our DNA.  It’s who we are, where we’ve been, and where we’re going.  Our history, heritage, and authenticity are continually evolving in contemporary ways as we reach out to customers around the country and around the world.”

With the recent passing of economic historian David Landes at age 89, the curtain has fallen on an academic career of extraordinary historical significance.  One of the all-time greats, Landes produced several masterworks, including The Unbound Prometheus and The Wealth and Poverty of Nations.  While these are his best known books, everything he wrote remains worth reading, from an article published in 1949 on why French society produced relatively few entrepreneurs in the 19thcentury (1), to a collection co-edited in 2012, The Invention of Enterprise:  Entrepreneurship from Ancient Mesopotamia to Modern Times (chapter 14 of which is an essay on the history of entrepreneurship in the United States from 1920 to 2000 by Winthrop Group's own Margaret B. W. Graham).  

 I'll say more about Landes’s intellectual legacy and major publications below but wish first to recount how he influenced me long ago when I was in graduate school.  At the time, the Harvard History Department required Ph.D candidates to spend the second year of the program preparing for an oral exam based on extensive readings across four different fields and three different time periods  I was concentrating on early modern British history, and I did a field in medieval English history to begin to put this field in perspective.  I also read American colonial history (with Bernard Bailyn, about whom more below), and for the fourth field chose Social and Economic History of Europe since 1750, which Landes presided over.  I knew of him, of course, as The Unbound Prometheus was already a classic and he was reportedly an entertaining and provocative lecturer.  At the time I was thinking that understanding some economic history might come in handy someday, and, hey, how hard could it be?  I was about to find out.    

 Early in the first semester, I prepared a reading list for Landes to review.  I cobbled this together from similar lists shared with other students, contemporary and in the recent past, and added a few of my own ideas.  Even so, given the vast scope of the subject, I had to make a lot of choices. The field required us to be informed about several dozen countries.   And, oh, by the way, if there was pioneering work being done on the economic history of the Americas and Asia (and there was) we needed to know that, too.   

When I showed Landes my 15-20 page reading list,  he flipped through it quickly, said it was a good start, then added I had missed important topics like social structure in Bavaria in the late 18th century.  He also wanted me to expand my reading of economic theory, especially the theory of development, from Weber and Tawney forward, through Kondratieff, Gerschenkron, and Rostow.  He put the fear of God into me, and I redid the list.  It got longer and I plowed through most of the items on it by the end of the year.  

I also sat in on Landes's lectures and attended a weekly seminar he ran for the rather large bevy of graduate students reading with him for the oral exam.   It was a pretty impressive crowd, and a number went on to eminent careers in history and other fields.  Landes’s seminars were extraordinarily exciting, stimulating, and fun.  He knew how to work a crowd.

On the day of my oral exam, I knew I would have to go one-on-one with Landes for 30 minutes.  I made sure I knew something about social structure in Bavaria and had at least a Cliff’s Notes version of the major theorists of economic development, but he never asked.  In fact, for all his leonine reputation, he proved something of a pussycat.   I can recall only one question, which aimed to get at what I thought about contrafactual history.  This was a technique pioneered by one of Landes’s contemporaries, Robert Fogel, who had written a book arguing that the railroads, conventional wisdom aside, were not hugely important to American economic growth.  Fogel attempted to prove this thesis by calculating that growth rates would have been comparable had investment continued in canals.  Landes’s question was, could I offer and discuss other historical topics where a contrafactual approach might be revelatory.  I don’t remember what I said, but evidently it was coherent enough to earn me a passing grade.  I continue to reflect on this question from time to time, however, especially when I’m tempted to exaggerate claims for the role of an individual or any other particular factor in triggering significant historical change. 

Which brings me back to Landes’s intellectual legacy, which I came to appreciate more fully after the formation of The Winthrop Group, Inc. in 1982.  Along with Bernard Bailyn and Alfred D. Chandler, Jr., Landes is one of the intellectual godfathers of our firm.  These great historians taught us and produced works that stimulated our thinking and validated our conviction that the past contains important lessons and helpful insights for understanding the present and (within obvious limits) indicating the future.  Interestingly, they were contemporaries and friends in graduate school, and all three studied the practical effects and implications of history at the Center for Research on Entrepreneurial History at Harvard Business School.  For my money, Bailyn is America’s greatest living historian, possessing an uncanny ability to ask penetrating questions and then to answer them brilliantly.  Chandler dominated the field of business history and made his work relevant to executives in practice.  Landes made the history of commerce, entrepreneurship, and family businesses his own.  The modes of inquiry and topics of interest of these three giants have had a profound influence on Winthrop Group’s work.

1 David S. Landes, “French Entrepreneurship and Industrial Growth in the Nineteenth Century,” Journal of Economic History, 9 (1949), pp. 45-61.

Some Major Works by David S. Landes (1924-2013)

Reading David Landes is a great pleasure.  His books are smart, imaginative, authoritative, and well written.   Here is a brief guide to some of his more significant works.

1.     The Unbound Prometheus:  Technological Change and Industrial Development in Western Europe from 1750 to the Present (1969, 2nd edn. 2003).  A seminal text for understanding the coming of the modern industrial economy, starting with technological change in the 18th century and the ripple effects on the organization of work, communities, and society.  Originated in the 1950s as a contribution to the Cambridge Economic History series and, after two revisions 34 years apart, still assigned in college and graduate courses.                                              

2.     Revolution in Time:  Clocks and the Making of the Modern World (1982).  My personal favorite:  a tale of falling in love with timepieces and uncovering the role they played in transforming pre-industrial into modern life.  A wonderful book.                                                                                                        

3.     The Wealth and Poverty of Nations:  Why Some Are So Rich and Some Are So Poor (1998).  A magisterial treatment of the most fundamental question in political economy today or in any era.  According to Landes, the answer has a lot to do with geography, culture, attitudes toward science and modernity, and institutions.  Some critics regard the book as old-fashioned and Eurocentric.  There’s nothing old fashioned about deep mastery of subject matter, careful analysis, and clear argumentation.  As for the charge of Eurocentrism, Landes responded himself in the last four sentences of the Preface:  “Some would say that Eurocentrism is bad for us, indeed bad for the world, hence to be avoided.  Those people should avoid it.  As for me, I prefer truth to goodthink.  I feel surer of my ground.”                                                                                             

Dynasties:  Fortunes and Misfortunes of the World’s Great Family Businesses(2006).  In this book (and also The Invention of Enterprise), Landes returns to where he started, with an examination of entrepreneurship and the evolution of family businesses in banking, automobiles, and natural resources.  His first book, Bankers and Pashas:  International Finance and Economic Imperialism in Egypt (1958) had begun exploration of these topics.  In Dynasties, he looks at the rise and (usually) fall of family fortunes from the Medici to the Toyodas and Schlumbergers .  He also restores family enterprise to its rightful place as central 

Is it possible that even President Obama sighed with relief when Lawrence Summers withdrew his name from consideration for the position of Chairman of the Board of Governors of the Federal Reserve System?  Faced with near-continuous confrontation on the political battlefield that characterizes his second term in office, the President’s acknowledged respect for Summers would not have been enough to whet his appetite for the ensuing clash had Summers been nominated.  Yet even though his nomination of the less-controversial Janet Yellen, media coverage of stories that include the Federal Reserve System emerge daily. This, along with James Bruce’s just-released documentary “Money for Nothing: Inside the Federal Reserve”, have ginned up what may be an unprecedented curiosity about the United States’ central bank. [1]

As one would expect during these years of the Great Recession, actions taken by the Fed under Chairman Ben Bernanke -- the only name many people associate with that position -- drew considerable and regular attention.  Speculation concerning the person who will succeed Bernanke as Chair of the Board of Governors has ended, but continues with regard to when there will be a pull-back, or “tapering” from Quantitative Easing.  Some of the interest and coverage no doubt has been fueled by the voracious content requirements of the 24-hour news cycle.  Another attraction factor is the Federal Reserve System’s unique authority to print money.  But what actually may draw the average citizen to read, watch, or listen to another news story about the Fed is this:  a general awareness that the Federal Reserve represents a concentration of power that is poorly understood and a general dis-ease because we know very little about its leaders, who for the most part have been bankers, businessmen, or economists.  

This subject of the leaders of the Federal Reserve System is one recently discussed with Richard E. Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University’s Stern School of Business.  Of the 14 individuals who have led the Federal Reserve System, Professor Sylla elected to comment on, exclusive of current Fed Chair Ben Bernanke, six whose impact he views as noteworthy.  Sylla reveals his interest in the distinctively stronger individuals who have led the Federal Reserve and his observations and perspective are well worth sharing.  

President Woodrow Wilson’s Secretary of the Treasury, William G. McAdoo, is credited with having developed an operational central bank from the 1913 Federal Reserve Act. Though he served as an ex officio member of the central bank’s Board and  was its  Chairman, McAdoo by any measure might very well be labeled the most audacious of Fed’s leaders:  With the Federal Reserve no more than months old, it was he who closed the New York Stock Exchange for four months in 1914 to protect the US dollar at the beginning of World War I.  Sylla observed, as have others, that had the European investors been able to sell off their US investments suddenly in order to finance the War effort, U.S. securities markets and perhaps the American economy “would have been left in tatters”.  Instead, as a result of McAdoo’s deft financial management, leadership of the world economy shifted to North America, and New York replaced London as the leading financial center..

Benjamin Strong, Jr., one of the ‘brain trust’ of New York bankers pushing  for formation of the Federal Reserve, was named the first Governor of the New York Federal Reserve Bank in 1914. For all intents and purposes he led the United States’ monetary policy for the next 14 years.  Following on McAdoo’s actions, European nations liquidated their American assets for the War effort in a non-disruptive way, and US debt held by European countries evaporated.  The United Stated emerged as an economic power and, according to Sylla, Strong was the banker who made it possible to maintain price-level stability and the liquidity of the banks in the 1920s.  Some economic historians have speculated that had he not died in 1928, he might have been able to stave off the bank failures that followed the Crash 1929.  Sylla’s opinion on that: “Strong was a unifying force for Fed policy in the 1920s, and after his death disagreements between the Reserve Banks and the Board in Washington resulted in Fed inaction when action was needed as the Great Depression unfolded.”  

Next among the six on whom Sylla commented is Marriner Stoddard Eccles, appointed in to the Federal Reserve Board in 1934 by FDR.  In 1936 he became the first Chairman of the Board of Governors of the Federal Reserve System as we now know it.  The 1935 Banking Act strengthened the Federal Reserve System by reducing the powers of the regional Federal Reserve Banks, centralizing more authority inits Board of Governors in Washington, and removing from the Board the Secretary of the Treasury and the Controller of the Currency.  Chairman until 1948, Eccles served through perhaps the single most challenging period of Federal Reserve history marked by recovery from the Great Depression and the financing of World War II.  The Great Recession may cause some to question this, but Eccles’ support for what became known as a Keynesian-based policies and his work during the negotiations at Bretton Woods remain as evidences of a strong legacy.

William McChesney Martin, Jr., Chairman of the Board of Governors from 1951 to 1970, also is on Professor Sylla’s list of noteworthy leaders of the Fed.  Several facts justify this:  Martin negotiated the 1951 Accord, which re-established the independence of the Federal Reserve from the Treasury Department and the executive branch of government.He then worked to sustain that independence through the administrations of five Presidents.  What probably made possible the second of these accomplishments, in Sylla’s opinion, was long and general expansion of the economy and resulting prosperity with low inflation that characterized the 1950s and 1960s. Martin’s reputation, according to Sylla, nevertheless was undermined during the later years of his Chairmanship.  He “knuckled under to President Johnson’s pressure for low, populist interest rates despite the overheating of the economy resulting from Johnson’s increased spending on his Great Society programs and the war in Vietnam.”   

In part because he continues to be covered by the media, many people recognize Paul A. Volcker’s name even if it is not because of his having been Chairman of the Federal Reserve.  Today Volcker frequently is sought out as one of the ‘wise men’ of economics who expresses himself succinctly and in a straightforward way.  Certainly his ‘claim to fame’ as Fed Chair (1979-1987) is associated with his having brought to heel the rising inflation and ‘stagflation’ that characterized President Carter’s administration.  By the end of Carter’s presidency in 1981, inflation had reached double-digit rates.  Volcker’s general ly conservative approach to reining in monetary growth and letting interest rates rise to the highest levels in U.S. history reduced the inflation rate to 3.2% by 1983. Sylla views Volcker as an economist of centrist convictions whose strong commitment to reducing inflation while maintaining the independence of the Fed bore fruit.

Alan Greenspan, Volcker’s successor, by contrast is characterized by Professor Sylla as having an ideological free market bias, one that supported economic expansion, but in the end proved to be unsustainable as the financial crisis and Great Recession of 2007-2009 unfolded.  As Fed Chair from 1987 to 2006, Greenspan leaned toward a loose money policy.  With a few exceptions in this period (1994, for instance) the Federal Reserve generally kept interest rates low, as favored by Greenspan, Wall Street, and most Americans. This provided the wherewithal for an extended bull market run that aided some sectors of the economy and benefitted many.  At the same time under Greenspan’s leadership, the stage was set for the drama of the dot.com bust (2000-2002) and seeds were sown for the bitter harvest of the housing bubble in the sub-prime mortgage crisis and the resulting Great Recession.  Greenspan’s reputation has suffered significantly  because he seemed unable to perceive the approaching limits of either of the two bubbles that formed during his tenure and, some would say, he became too self-assured by his faith in markets to recognize the need for mitigating action. 

1.  LA Times review, New York Times review, Forbes opinion piece, interview with filmmaker James Bruce

In the twentieth century, most of the records produced by individuals, businesses and government agencies were paper.  In the twenty-first century, we are living our personal and professional lives in digital spaces.  As archivists committed to documenting our culture, we must find ways to capture those digital records.  And in the fast-moving computer world, we need to intervene early in the life of documents or lose them forever.  The Library of Congress recognized this need and founded the National Digital Stewardship Alliance (NDSA) in 2010 to “establish, maintain, and advance the capacity to preserve our nation's digital resources.”

One of the initiatives of the NDSA is the National Digital Stewardship Residency (NDSR) program which aims to “build a dedicated community of professionals who will advance our nation’s capabilities in managing, preserving, and making accessible the digital record of human achievement.”  The first ten residents have been chosen by the Library of Congress, with their projects to begin in September.  In addition to this pilot program, is the National Digital Stewardship Residency in New York (NDSR-NY).   The program, to be run by the Metropolitan New York Library Council (METRO) and the Brooklyn Historical Society will be funded by a grant from the 2013 Laura Bush 21st Century Librarian Program of the Institute of Museum and Library Services (IMLS).   

In addition to extending and refining the NDSR in D.C., the three primary goals of NDSR-NY as described by the proposal abstract 

1.   Address the need for trained staff working to preserve digital materials within cultural heritage by training a new generation of digital stewards in the technical, conceptual, and practical competencies of digital stewardship
2.   Increase institutional capacity for digital stewardship by meeting the need within the library, archives, museum community for new professionals with a mix of conceptual knowledge, hands on, practical skills, and workplace experience. 
3.   Develop a sustainable, extensible model for postgraduate residencies combining advanced training and experiential learning by working closely with current NDSR program management and a…concurrent NDSR implementation in the Boston area to refine and enhance the NDSR model, to ensure it is replicable and scalable for potential use nationwide

In short, over the three-year grant period, the NDSR-NY initiatives will create a core group of young professionals with the skills necessary to select and preserve digital materials; place those professionals in libraries, archives, and museums that have a growing need for those skills; and create a template for other training programs to follow.  Resident recruitment for the NDSR-NY program is to begin soon with the first class of residencies scheduled for Summer 2014. 

In a world where many of our bridges are fifty, a hundred, even 150 years old the line between current documentation and historical documentation blurs.  Scott Cline, City Archivist for the Seattle Municipal Archives, underscores the importance of this fact, noting, “The design and construction records for roads, tunnels, bridges, etc. are powerful tools in the inspection and maintenance of those facilities. They document materials and methods that should inform maintenance and repair work to keep these structures safe, secure, and reliable.”  This is particularly significant, Cline says, because, “Infrastructure failure can be disastrous and deadly.”

The National Bridge Inspection Standards (NBIS) review process sets requirements for state Departments of Transportation regarding inspection of highway bridges and mandates regular submission of survey results; however, it fails to mention original design documents. Thus, although state agencies including Transportation Departments (especially their Bridge Preservation and Cultural Affairs Offices) and Historic Preservation Offices often hold the most valuable records, original documents regarding the design, construction, and maintenance of bridges may be spread across various government agencies and private collections from public libraries to the National Archives.

In the case of the collapse of the I-35W bridge, investigators from the National Transportation Safety Board (NTSB) relied on the original engineering drawings and other documents from the firm that designed the bridge in the early 1960s in addition to records of the Minnesota Department of Transportation (MnDOT), including contracts, agreements, and decades of inspection reports. The research uncovered a flaw in the original design that the NTSB report concluded was the primary cause of the collapse.

“Historical documentation is essential in historic bridge preservation for directing and/or justifying installation of features identical to or reflective of original fabric,” notes Craig Holstine, Historian with the Washington State Department of Transportation’s Cultural Affairs Office. “Without accurate documentation, bridge preservation is left to the imaginations of engineers and historians.” 

The Historic American Engineering Record (HAER), established in 1969 by the National Park Service, the American Society of Civil Engineers, and the Library of Congress to document historic engineering and industrial sites and structures, also plays an invaluable role. HAER reports draw on primary and secondary sources as well as direct observation to document historic structures. This documentation not only preserves accurate information about a historic bridge or other property that faces demolition, but also facilitates repair or reconstruction. Additionally, it provides a trusted source used by engineers, architects, scholars, researchers, preservationists, and others. 

Technology continues to add new challenges and opportunities for archivists. Many of our earliest bridges have no engineering drawings. However, today the latest laser scanning devices and data processing techniques are being applied to some of these historical bridges in order to assemble complete digital representations of them and to create scaled, three-dimensional replicas. The images, scan data, and precise measurements become essential parts of the archival record. 

Scott Cline points to the central role of archivists in this regard:  “One of the vital functions of government is to maintain safe, secure, and reliable infrastructure—roads, bridges, sidewalks, and in the case of public utilities dams, pipelines, transformers, etc. Easy access to the complex body of records that document infrastructure is required for the maintenance of those facilities. These records are active as long as the structure exists and it is important for archivists to work with public works officials to ensure those records are properly preserved.”

Readers of this blog may remember a post from January about the still-unfolding saga of the manuscripts of Timbuktu, Mali.  The city, whose name evokes the romance of the exotic to American ears, is a quiet desert town today, but historically was a center of trade and culture.  The legacy of that past is thousands of irreplaceable historical manuscripts.  Long-term efforts to preserve and organize these texts were ongoing when Timbuktu was overrun by Ansar Dine, a radical Islamist group with links to Al Qaeda.  In keeping with their ideology, the rebels destroyed cultural sites that didn’t fit their narrow interpretation of Islam, including burning texts at the Ahmed Baba Institute of Higher Studies and Islamic Research.  However, unknown to Ansar Dine, the bulk of the valuable manuscripts from that and other libraries and private collections in Timbuktu were already gone.  The inspiring story of the fate of Timbuktu’s manuscripts emerged slowly.

Adbel Kader Haidara is a Timbuktu local who has served as protector of his family’s extensive library since he was 17.  For decades, he has been involved with efforts to preserve and share the rich manuscript legacy of Mali.  In peaceful times, he traveled the country, convincing some holders of family collections to donate or sell them to the Ahmed Baba Institute and encouraging others to implement modern conservation techniques and shared cataloging and scanning projects.  His family collection became the Mamma Haidara Memorial Library, opened in 1998.  These manuscripts depict a wide variety of topics--both ancient Korans and other religious texts and secular works of history, trade, mathematics and astronomy.  Their importance to scholars is hard to overstate.

When the manuscripts were threatened, Haidara, with the help of local librarians and others, packed them tightly into footlockers and stowed them around Timbuktu.  When the Ansar Dine occupation threatened to expose the manuscripts, Haidara enlisted the assistance of Stephanie Diakité, a governance specialist and book conservator with whom he has worked for many years.  Together, they developed a plan to smuggle the books out of Timbuktu to safe houses in southern Mali.  Couriers moved the footlockers by donkey carts, trucks, buses and boats.  It is a story of courage and tenacity to inspire us all.

However, the 300,000 manuscripts are now in danger not from political unrest but from the elements.  The deterioration that had been taking a slow toll on the materials in hot, dry Timbuktu has been exacerbated by the smuggling process and more humid conditions in the south.  Diakité and Haidara are spearheading a new campaign to get the manuscripts into archival, moisture-resistant storage before they are lost.  As of June 6th, a crowdsourcing effort has raised $23,062 of a desired $100,000.

What is the best long-term home for these manuscripts?  It is important to everyone involved that they stay in Mali.  As Diakité stated in a recent Reddit Q&A, “Patrimony that leaves it's home has a very hard time getting back - there are numerous collections of African patrimony in that nebulous state already. This patrimony is Malian, we will do everything possible to keep it in Mali until we can return it to its families in Timbuktu.”  

The answer is ‘Yes’ and with good reason. 

Digital collections comprise only a fraction of the materials available in this country’s libraries and archives.  Beyond that, libraries offer intangible benefits that the digital world never can.  When archival and library repositories embrace the future by providing digital access to collections both rare and common, the role of the physical space changes.  Beyond the tactile pleasure of print books and the historical value of original documents, the library is a community space.  And perhaps, most importantly of all, it is where the skill and knowledge of librarians and archivists can be engaged to public benefit. 

On Marketplace Tech, Maureen Sullivan, President of the American Library Association, was quoted:

“We in the library field and all of our supporters have to do the very best we can to help the funders and decision makers understand that this is an enhancement and not a replacement for today’s library…traditional libraries offer programs and services – and an atmosphere – you can’t get online.”

If anything, both virtual and physical spaces where these professionals can assist the public are ever more important as many more inexperienced researchers gain access to primary sources.  Librarians and archivists help to guide users in how to find the right information and to verify authenticity of sources, something that cannot be automated.  As author Neil Gaiman has stated, “Google can bring you back 100,000 answers, a librarian can bring you back the right one.”  

Let’s not forget, also, that each item available through the Digital Public Library of America has been selected, preserved, scanned and described by information professionals.  Librarians and archivists are the driving force behind digital projects like this because they see it as a way to expand access to their materials, an extension of their longstanding commitment to serve the public. 

Francis Blouin, Professor and Director of the Bentley Historical Library at the University of Michigan, adds, “libraries need to change from content providers to a place that helps people navigate the content.”  He concludes, “There is a sense that the older generation have a romantic longing for the experiences in a public library, but what is good and enduring needs to match to the digital library reality.”  The key to the bright new future is to view exciting new projects like the Digital Public Library of America as additional resources that enhance the library experience, not as a replacement.

In this first of a two part series, we will look at the vital need to preserve records that document these bridges not just as engineering projects but as part of our culture.

America’s transportation infrastructure is seriously troubled. Financial strains and budget cuts to federal, state, and local public works projects have become a fact of life. At the same time, the various parts of the system are aging, travel demands are increasing, and costs of labor and materials are rising. That is both common knowledge and a political battlefield where citizens, corporations, pundits, and politicians debate what should be done about it.

In particular, the state of the nation’s bridges offers an instructive example. Our aging spans have suffered major challenges in recent years. The 2007 collapse of the I-35W bridge over the Mississippi River in Minneapolis provides a stark reminder of what is at stake. Efforts to save the most important bridges face a widening conflict between preservation and demolition.

One-third of the US’s 600,000 bridges are over 50 years old and are in need of repair or replacement. Fewer historic spans are being saved because the political driver often is the cost of renovation or restoration, instead of a more judicious evaluation process that balances financial concerns and cost effectiveness with the socio-cultural significance of preserving these heritage landmarks of our “built environment.”

Whether a bridge’s fate is repair, renovation, or demolition for replacement, accurate documentation is imperative. The most critical documentation is principally of two types: specific engineering records and general contextual information.

(1) Engineering records of primary value are design drawings (including early design sketches that were not adopted), measured drawings, reports and studies (for example, “Final Report on Design and Construction”), site surveys, environmental studies, field notes, photographs (large format/high resolution), drawings and other records related to structural modifications, site modifications, seismic retrofits, and wind tunnel studies. The technical data is vital for ongoing maintenance and long-term preservation, or in the case of a bridge failure for repair or for diagnosing the cause of the failure in detailed structural engineering terms.

(2) Contextual information often is neglected for years, even decades, and may be more difficult to collect. These records document the social, political, and community significance of the structure. Typically the most valuable are photographs, newspaper clippings, trade and technical engineering magazines, correspondence, records of public hearings, city or county commissioner meeting minutes, even oral history interviews with engineers and prominent community leaders involved in creation of the bridge.

From construction to completion, maintenance, repair, and eventual replacement or long-term preservation, bridges present powerful testimony to the importance of documenting our historic infrastructure. Today, archivists face a compelling need and opportunity to work hand-in-hand with preservationists, engineers, citizens, and others to mindfully transcend the growing gap between preservation and demolition.

In part two of this series we will look at who safeguards the records of our bridges and how technology is changing the nature of those records and how they are preserved.

And maybe you would be — if you happened to sign that one-in-a-million leader.

The problem is that, among charismatic executives, for every Steve Jobs, there is at least one Dick Fuld — maybe more. Persuasive and strong-minded, Fuld presided over the downfall of Lehman Brothers. Nor is Fuld alone: Six out of 18 of Germany’s most recent winners of the title “Manager of the Year” were responsible for dramatic missteps, including Daimler’s disastrous acquisition of Chrysler Corp. under CEO Jürgen Schrempp. That raises a question: Do charismatic business leaders typically outperform their more ordinary counterparts over the long run?

To read the entire MIT Sloan Management Review article, click here.

“There’s no need to dwell on the past; what matters is the future.” As business historians who consult frequently to companies, we hear some version of this sentiment all the time from executives. When the history of an organization does come up, it’s usually in connection with an anniversary—just part of the “balloons and fireworks,” as one business leader we know characterized his company’s bicentennial celebration (knowing that the investment of time and money would have little staying power). This is not to say that celebrations are unimportant, and we sympathize with managers’ day-to-day need to focus on the steps ahead. A fast-changing world leaves little time for nostalgia and irrelevant details—or, worse, strategies for winning the last war.

We also know, however, that leaders with no patience for history are missing a vital truth: A sophisticated understanding of the past is one of the most powerful tools we have for shaping the future. Consider how Kraft Foods managed its 2010 integration of the British confectioner Cadbury. Cadbury’s management had mounted fierce resistance to the acquisition, and many of its 45,000 employees feared the loss of their values and an end to the product quality for which the company was known. As the clash of cultures was picked up by the business press, many observers predicted that this would prove to be yet another value-destroying deal, a nightmare of postmerger failure to integrate.

To help smooth the process, senior executives turned to Kraft’s long-established archives. Company archivists quickly launched an intranet site, titled “Coming Together,” that honored the parallel paths Kraft and Cadbury had taken. Poring over historical materials, they had found much evidence of shared values, and the presentation reinforced those common themes. For instance, the founders, James L. Kraft and John Cadbury, were both religious men whose faith had deeply influenced their business dealings. Both had demonstrated a commitment to creating quality products for their customers. Both valued their employees at a time when workers were often seen as a commodity, and both believed in giving back to their communities. In addition to the founders’ stories, the intranet site included interactive time lines, iconic advertising images, brief documentary videos, and dozens of detailed histories of brands such as Oreo cookies, Maxwell House coffee, Ritz crackers, and now Cadbury chocolate and Halls candies—all designed to show how leading Kraft and Cadbury brands had come to sit side by side on grocers’ shelves. The ultimate illustration, titled “Growing Together,” traced Kraft’s previous mergers as well as the one with Cadbury. Its clever road map motif implied continued forward motion as a stronger, united company. The same narrative took hold in other communications, from CEO speeches to press releases, and in employee training sessions. Kraft ended up integrating Cadbury more smoothly than any of its previous acquisitions.

That very deliberate use of the company histories to ease anxiety was masterly, but the story only begins to explain how a company can utilize its past. The job of leaders, most would agree, is to inspire collective efforts and devise smart strategies for the future. History can be profitably employed on both fronts. As a leader strives to get people working together productively, communicating the history of the enterprise can instill a sense of identity and purpose and suggest the goals that will resonate. In its most familiar form, as a narrative about the past, history is a rich explanatory tool with which executives can make a case for change and motivate people to overcome challenges. Taken to a higher level, it also serves as a potent problem-solving tool, one that offers pragmatic insights, valid generalizations, and meaningful perspectives—a way through management fads and the noise of the moment to what really matters. For a leader, then, the challenge is to find in an organization’s history its usable past.

To read the HBR article click here

Harvard Business Review editors go to work every day on articles they hope will make their mark on the history of management thinking. Coincidentally, the site where they go to work is itself of historical importance to management — because of a fight that is still alive today. After HBR outgrew its small quarters on the Harvard Business School campus, it landed a couple of miles down the street in Watertown, Massachusetts, in an office…

To read the HBR blog post, click here

Independently supported, non-religious schools educate just one percent of American schoolchildren. They number no more than 1,400 institutions, compared with some 110,000 public schools. They boast an array of benefits, among them small size, low student/teacher ratios, tough but sympathetic teaching by faculty that are masters of their fields, a lack of bureaucracy, a sense of community, and an emphasis on ethical and moral values. Seeing these benefits clearly is important because independent education is also expensive, though no more so than public education where the costs, to the consumer, are spread. In independent schools, they are highly focused. Ask any parent.

By the very nature of their “independence,” no two independent schools are identical. Yet all rise or fall on the answer to an old question: what is the place of independent education in a democratic society that educates the vast majority of its children in other kinds of schools? Given independent education’s tiny “lift capacity,” why should we care about the answer?

Public context

We can understand the vital role that independent schools play only in relation to the massive edifice of the public schools. Before the nineteenth century, American children received their schooling, such as it was, from local charity and church schools, private academies and, for the wealthiest, private tutors. Public schools and public school systems—open to all and financed from the public purse—were products of powerful converging forces in the mid-nineteenth century: Jacksonian democracy, the second industrial revolution, rapid urbanization and mass immigration. Like any mass movement, the rise of American public education was filled with compromise and conflict, conviction and expediency. Over time, local governments learned to navigate competing interests, educational theories, and claims of secular and religious constituencies. By the early twentieth century, they had created the thousands of local “systems” that we have come to know as “public schools.”

The public schools became an undeniable success story, one that transcended class, ethnic, regional and eventually even racial lines. Everyone partook together—the poor, the middle class, even some of the rich, native and newcomer alike—and everyone was remarkably wellserved. From the beginning, then, the public schools could claim one seemingly unassailable, non-academic virtue: they were the mixing bowls of democracy. Accommodating changing styles of pedagogy with ease, they worked equally well as childhood crucibles for the “melting pot” in the early twentieth century and as engineered environments for “diversity” at the start of the twenty-first.

Private anxiety

This assumption—that egalitarian social mixing under the auspices of the public schools was an essential preparation for life in a democracy—became a problem for the non-public, nonreligious alternatives as the relationship between public and private schools changed in the 1960s and ’70s. The words did not help. Since the rise of the public system, schools that did not receive public financing had been known as “private schools.” “Private” did not mean “closed,” of course, for admission to private schools typically was open to all, though obviously not all could be accommodated. The College Board first used the phrase “independent school” in 1938, to distinguish private, non-sectarian schools from religious ones. This distinction became increasingly important in the context of the civil rights movement and the social turmoil that followed, as independent schools took care to distance themselves from the Christian academy phenomenon and the taint of “white-flight” from faltering public schools.

This new era presented challenges as well as opportunities. Independent schools benefited (sometimes with embarrassment) from the distress of public schools, as families migrated away from the beleaguered public sector. But frustration with the public schools also raised the expectations placed upon independent ones. The resources needed to meet them, coupled with continued tiny enrollment capacity of independent schools, led to higher prices. Families clamoring to get in also meant that independent schools could be more selective. As prices and standards rose, so did charges of elitism.

In the more distant past, many independent schools, particularly boarding schools in New England and the South, were indeed bastions of privilege, filled with legacy admissions and catering to the children of established and aspiring elites who could afford to pay. Private dayschools tended to be more varied in their composition and attitudes. Though some were elitist, many were staunchly middle class, filled with the offspring of the managerial and professional classes at a time when those classes still commanded only modest incomes. Curricular offerings< centered on academic learning, usually classical in nature but in some cases progressive too. Faculty were loyal and inexpensive. Physical plant was far from palatial and often inferior to that of the public schools. Filling spaces could be a challenge, particularly in large cities with attractive public systems. Tuitions necessarily stayed low. Independent schools of that era operated rather in parallel with than as alternatives to the public systems.

Independent answers

It is the central irony of their more recent history that all independent schools found themselves branded “elite” when it was the mounting problems of public systems that fueled the growing demand for a privately-purveyed but open-to-the-public education. This occurred, moreover, at the very moment when elitism in any form came under fierce attack, encouraging independent schools to dissociate themselves from any vestige of it.

By the 1980s, bouts of introspection, unimaginable in earlier days, became part of independent school routine. Administrators and faculty tied themselves in knots over the wording of mission statements as elaborate as any corporation’s and sometimes more breathtaking in scope. Fighting back against the perception of elitism, “private” schools recast themselves as “independent:” not only to separate them from religious institutions, but also to signify institutions whose independence allowed them to offer something dramatically different from and superior to what the public schools could offer.

As independent schools looked within, they also projected outward, trying to justify their worth to society as a whole. Many did so by mimicking the public schools, especially in multicultural education, which sought to bridge the gap between schools and society and so, it was believed,< make schools more useful. While their zeal for diversity may have been compensation for their perceived laggardness in racial integration a decade or two before, it seemed like a good fit. Public schools might put different groups under one roof (where they sometimes resegregated), but private schools, which were smaller and emphasized the ideal of community, stood a better chance of instilling in students an understanding of people of different backgrounds and thus prepare them for the increasingly diverse society of which they were destined to be members, even leaders. Such professions of public responsibility became de rigeur. In fact, it was hard to find an independent school that did not require long hours of “community service,” along with long hours in lab and library, to back it up.

Back to the future

However earnest, this assertion of public responsibility expressed through such non-academic preoccupations obscured a more fundamental issue with deeper roots. For a century at least Americans have argued over education. What are schools for? Who gets schooled? What must they learn? Was it not in the context of this long, hard debate that independent schools might persuade others of their public role as beacons amid a sea of less fortunate schools? Many believed so. For also embedded in their mission statements, alongside declarations of their commitment to diversity, could be found another, more historically-convincing justification for independent schools: the commitment to high academic standards and the belief that schools were above all intended for teaching and learning the skills of the mind.

The consensus around this principle, once widely shared, is now deeply eroded. The answers to two questions ought to confirm the mission of independent schools in restoring it. If it is true that children should be taught not just how to learn but what knowledge has the highest value, and if the main problem of public education is the dilution of this academic mission in the face of competition from social and cultural mandates, then the anxiety of independent schools about meeting their public responsibility can be laid to rest. Almost all independent schools agree that the central purpose of education is to render knowledge coherent and to teach students how to transform that knowledge into understanding of the world around them. Nor, history instructs us, is this purpose foreign to the public schools, however dormant in the recent past it may have become. To reaffirm this mission is to reaffirm the place of independent education in even the most diverse democratic society. Knowledge of the past is critical, for we cannot know the future, yet must have something to stand against the present. To awaken memory is to take the first step down the right path ahead. If independent schools can do this, then future history will record how private education came to serve an urgent public purpose, independently.

© Copyright 2012 The Winthrop Group, Inc. All Rights Reserved.

“Citadel” was the word that A. J. Cronin chose for the title of his novel about abuse, incompetence, and idealism in medicine as he observed it in Britain in the early twentieth century. He could not have guessed how well he chose. He wrote about doctors and how they treated the rich and the poor, access and fairness. He wrote about botched procedures and neglected prevention, quality and impact. He wrote about the motives that drove men and women to take up lives in medicine, idealism and money. A century later, these remain lively issues, especially in the United States. One year after passage of the Affordable Care Act (2010), its fate remains uncertain, as it makes its way through the courts. Since health care will remain a critical issue, we do well to reflect on how we came to this moment and how history will shape choices yet to come.

There is wide agreement that our society can and should be healthier and that we should use less of our collective wealth in purchasing the health care required to achieve that goal. While we have made great progress in understanding the complexities of human biology and banishing much disease, we have been far less successful in translating our knowledge into more effective evidence-based treatments and policies to promote healthier living.

Part of the problem lies in the fact that health care remains a highly fragmented, “cottage,” industry, poorly organized, with limited control over quality and cost and characterized by slow dissemination of new knowledge, technology, and practice. Health care operates partly in the market and partly as ward of the state. Its constituents, patients, doctors and other providers, research and teaching institutions, the insurance and pharmaceutical industries, the government itself are beset by a bedlam of confused, even faulty incentives.

In the face of these challenges, there is no shortage of blueprints for change. Each advances its own principles to arrive at the levels of performance and collaboration needed to create a sustained and measurable impact on the health of our society, all at an acceptable cost. Whatever we choose to do next, however brilliant or disappointing this latest attempt at “reform” turns out to be, history suggests that it will not be the final but only the next chapter in a long-running serial. There have been four installments thus far: Science in Medicine, The Fruits of Discovery, Health Care and Rights, and Costs.

Science in Medicine

How bodies heal when diseased or injured is medicine’s mystery. From antiquity, physicians observed that they did heal and that wellness was nature’s state. How to help the body along, or at least how not to obstruct the way? This much was known and respected long before the coming of modern science to medicine. It was not trifling knowledge then, and it is not trifling now. Today’s best clinicians will still say that healing occurs mysteriously and that much of what they do is empirical and designed merely to help manage that process. The methods and insights of inductive science, in chemistry, biology, physics, crept slowly into medicine. By the late nineteenth century, they had reached a scale to drive powerful movements for reform. These aimed at improving therapies, raising standards of practice, and consolidating the authority of the medical profession in a smaller number of better-qualified medical doctors.

The reform of medical education was the primary means to this end, culminating in the publication in 1910 of Bulletin Number Four of the Carnegie Institute for the Advancement of Teaching, known to history as the Flexner Report after its author Abraham Flexner.

The Flexner Report was inspired by the example of Johns Hopkins and the German universities, and called for the radical winnowing of American medical schools. It detailed strict standards for admission and stipulated a universal four-year curriculum structured around two pre-clinical or basic science years followed by two years of clinical training. Teachers ideally (and controversially) were to be full-time so as to permit true devotion to research and teaching without the diversions of practice. Medical schools were to be allied with universities to expunge the proprietary stain of their history and ensure high intellectual standards.

The Flexner Report proved an earthquake less because of its originality than because of its sponsorship. Over the next 15 years, Flexner (who was not a physician) won the strategic commitment of both Carnegie and Rockefeller philanthropies to the cause of medical education reform. Relatively speaking, reform happened overnight. Substandard schools disappeared; superior ones blossomed. A new breed of physician-scientist emerged as the elite of a profession trained in curative medicine, with ever improving understanding of the biology of disease and with better but still limited means to cure it.

The Fruits of Discovery

The purpose of medicine is to serve, of science to know, and the coming together of helpful service and useful knowledge took some time. The first great successes of research came in the field of infectious diseases, beginning in the 1930s with the development of penicillin and in the 1940s and 1950s of other chemotherapeutic agents that attacked the specific microbial agents known to be fundamental mechanisms of disease. Wartime accelerated research and development more quickly than at any time in its long past. Medicine got measurably better at what it had long claimed to do. With the “antibiotic revolution” of the early postwar years, once largely untreatable bacterial infections like pneumonia, tuberculosis, syphilis, polio, and typhoid came under medicine’s effective control.

Scientific and clinical advance occurred against a policy background that was destined to cast a long shadow, as private insurance regimes developed to spread risk and ensure access to medicine’s bounty across the general population. As science proved its therapeutic value, and as the presumption of uniformly high quality settled in, the central challenge became one of how to socialize the costs of modern medicine. Who paid and who got access?

The rise of broad-based group health insurance in the United States dates to the founding in the late 1920s and early 1930s of Blue Cross: insurance plans that paid for treatment in hospitals on a cost-plus (cost of service plus cost of capital) basis. When price controls during World War II prevented wage competition for scarce labor, many firms embraced fringe benefits including hospital and health insurance, the cost of which in 1943 became tax deductible for businesses, the benefits tax-exempt for workers. In the postwar years, the system of employer-based insurance grew broadly and benignly, dominated by nonprofit organizations, which operated on the principle of community rating (equal premiums regardless of risk) and pooling (whereby high and low risk individuals bought coverage together). If the pool was large enough, the result was a kind of social insurance based on membership in the group, and not on need for service. By the late 1970s, 85 percent of American civilians were covered by such an employer-based private system.

Health Care and Rights

Medicine cannot escape its social, cultural and economic contexts, and it was not well-prepared for the tumult of the 1960s and 1970s. At first, when times were good and national selfconfidence high, the names our leaders gave to those years, the New Frontier and the Great Society, served to mobilize popular idealism and reconfirm older national meanings. The peculiarly American ambition to do all things well for all people all of the time boldly asserted itself. Medicine, which in previous decades had so well proven its promise, was an easy target. It ceased in fact to be “medicine” at all and evolved into “health care.” The World Health Organization’s famous 1946 definition of health as “a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity” had set the tone, and the words mattered. Medicine was precise and limited; health care was something else, altogether more comprehensive. In addition to the biological factors that were the domain of scientific medicine, health care encompassed social, economic, environmental, and religious factors. More and more, traditional providers of medicine were looked to for health as well. More was asked of them than before.

Implicit in these changing expectations of health was a “right” to it. Accordingly, the conversation changed. More and more, people assumed that they were entitled to medical or health care along with the products and technologies that enhanced it. To satisfy that right in a society whose productive capacity was finite could in turn require giving to some while depriving others. Evolving systems of health care provision reflected such anxieties.

In postwar America, a good job had come to mean one that offered not only good pay and some security but also health insurance. For those outside the employment-based insurance system, a net of public health coverage addressed the same expectation. The Hill-Burton Act of 1946 conditioned public subsidy for hospital construction on the provision of free care for the uninsured poor. In 1965, landmark federal legislation created Medicare and Medicaid, which entitled the elderly and the poor to medical coverage. Both public and private systems paid providers on the principle of “usual and customary charges,” a notion rooted in a pre-insurance era when the fees physicians could charge for service were subject to price competition. Thirdparty payment through insurance, however, reduced consumers’ sensitivity to price and even upended classical economic behavior, as high price often came to be correlated with high quality, low price with low. As long as the definition of “usual and customary” remained whatever the market would bear, costs rose even as new technology spread, which in other industries would have driven costs down. Meanwhile, for-profit insurers offering lower riskrated premiums to attract healthier people began to punch big holes in the Blues’ pool.

Costs

The entitlement reforms of the 1960s failed to address cost. As an aging population suffering more from chronic maladies than from infectious diseases spiked demand for health care, the cost of providing it approached levels that threatened to overwhelm other national priorities. By the 1980s, the distress of America’s once virtuous, parallel private/public system had grown acute, resulting in calls for reform across the political spectrum. Efforts to control costs were less than successful. In 1983, Medicare, which set the pattern for private insurers as well, attacked the cost-plus principle for hospitals with its Inpatient Prospective Payment System based on Diagnosis Related Groups (DRGs). While DRGs reimbursed fixed fees based on diagnosis, prospective payment stopped short of relating payment to results, and while hospital stays indeed went down, quality could go down too with perverse incentives to under-treat. Physicians’ fees came under this imperfect prospective payment regime in the 1990s, as did outpatient hospital care in 2000.

The subsequent movement to “managed care” bet on competition among insurers to drive costs down and on oversight of care by primary care physicians. More new phrases soon crowded the industry glossary, as Health Maintenance Organizations and Preferred Provider Organizations stepped up to negotiate prices with providers and, as it turned out, to manage and micromanage physicians. Capitation schemes (which paid fixed fees per enrollee per time period and allowed providers to keep the change if care turned out to cost less than the fee) further buttressed incentives to reduce costs and, like DRGs, cut down hospital stays. To maintain prices and margins, providers predictably pushed back against large health plans and zealous managed care administrators, consolidating and investing sometimes redundantly in facilities and technology. Reform reached fever pitch in the failed 1993 plan of the first Clinton administration, which proposed to insure the uninsured, oversee pricing nationally, and organize Americans into health insurance purchasing cooperatives. The debate continued to center on costs and access, leaving assumptions about quality still largely undisturbed.

The cumulative load of this story now weighs heavy as the United States, amidst economic crisis, embarks on yet another season of reform. Contenders for change range widely, from mandate programs and market-based competition to single payer systems and guaranteed coverage requiring dedicated funding. We know that infrastructure must be mended, that information must be better deployed, that incentives must work correctly. The prospect of comprehensive health care reform under a new, progressive administration will focus on payment mechanisms and equal and universal access, with bold subheads on controlling costs and improving quality. When reform does happen, it will be recorded as a triumph of daunting political complexity, and it will represent a new settlement among healthcare’s many stakeholders that is likely to define the field of play, if not all the plays, for years to come. But however it is reformed, the American health care system will be built with many blocks inherited from the past, not all of them well-fitting.

Even then, stubborn questions will remain. How to define health care itself? For the definition will shift, just as it has shifted from earlier, narrower understandings of what defined medicine. What is included and what is not? How to manage expectations?

There are those who contend that the American health care system, with its spotty quality, disproportionate costs, and lack of universal access falls short even of the very first law of medicine: do no harm. This is certainly true, but Hippocrates’ admonition serves a larger purpose than indictment. It is modest. Coupled with an appreciation of how science, today driven by genomics, proteomics and research at the molecular level, does and does not work, “do no harm” bids us keep some sense of proportion in our view of the health care enterprise. Science has fuelled the greatest achievements in medicine over the last century. It will continue to do so in the century to come, though in spite of, not because of, the rising insistence on the right to health, whose immediate goal is care and matters of availability and just distribution. Caring, like health, is broadly comprehensive. Curing, which is what science in medicine has always aimed to do, is not. Within its limited realm, science in medicine still holds untold promise for humanity. It also helps to remember that medicine and those who provide it can better cure our bodies than they can care for the rest of us. While we strive nobly for a system that treats “the whole person” the right way each and every time, even that system probably should not be relied upon for the care better found in families, schools, and churches.

Health care in America has a long history: from beginnings when medicine was largely (though not merely) an art, to medicine’s gradual and imperfect union with science, to the supply of new knowledge and surprising discovery that science delivered, to the demand for discovery’s fruits expressed through markets and money, to the rise of countervailing concerns about rights and justice. Some of the policy arguments that inform our current debates are new. The underlying concerns are not. Long before there was much medicine worthy of the name, Thomas Jefferson offered an epigram as fit for our time as for his: “Without health, there is no happiness.”

© Copyright 2011 The Winthrop Group, Inc. All Rights Reserved.

In HBR and elsewhere, a number of authors have wrung their hands about the public legitimacy of business. To steal from Churchill’s definition of democracy, business has become the least popular American institution, except for all the others. We can best see where influence really lies with President Obama’s new council on jobs and competitiveness. Its responsibility is the public imperative of our time, to promote employment in the aftermath of the Great Recession.

To read the HBR blog post, click here.

Enduring Success addresses a key question in business today: How can companies succeed over time? To learn the source of enduring greatness, author Christian Stadler directed a team of eight researchers in a six-year study of some of Europe's oldest and most stellar companies, targeting nine that have survived for more than 100 years and have significantly outperformed the market over the past fifty years. Readers may wonder, "Why European companies?" Yet, Europe is the ideal place to seek the key to long-term success; half of the Fortune Global 500 companies that are 100 years old or older can be found in Europe, as can 72 of the 100 oldest family businesses in the world.

Fifteen years after Collins and Porras' Built to Last, this new book incorporates fresh insights from management science and provides the first non-US perspective on long-range success. Through Stadler's study, a counterintuitive story emerges: the greatest companies adapt to a constantly changing environment by being intelligently conservative. Enduring Success provides a coherent framework, grounded in five principles and practical concepts, for business leaders who are prepared to learn from the history of some of the world's greatest institutions.

To learn more about this book, click here.

The four principle are:

1. Take the long view.
2. Take advantage of down markets.
3. Invest for the future.
4. Build loyalty through purpose and appreciation.

1. Take the long view.
Daimler-Benz
Armed with a long-term perspective, Daimler-Benz, the German luxury car maker, was able to chart a safe course through the 1973 oil crisis and the worldwide recession that followed. Throughout the 1960s, the firm’s three main shareholders, Deutsche Bank, the Flick family, and the Quant family, had argued noisily in favor of diversifying into a range of mass market brands, as General Motors had successfully done. But in 1965, the firm’s CEO, Dr. Joachim Zahn, recognizing the enormous start-up costs needed to compete in a mass market, decided instead to beef up the international market for Daimler’s existing high-end product line. He convinced the shareholders to sell off Daimler’s majority stake in Auto Union GmbH and use the proceeds to finance the international expansion. This niche strategy served to insulate the company in the wake of the 1973 oil crisis, when demand for mass market cars collapsed but luxury brands remained strong. For the rest of the decade, Daimler saw scarcely a dent in its financials, and by the early 1980s, it had become Germany’s largest automaker by sales value.

2. Take advantage of down markets.
Trinity Steel (now Trinity Industries)
Beginning in the late 1950s, Trinity Steel (now Trinity Industries), a Dallas-based manufacturer of LPG tanks, began to buy up troubled or closed plants at rock bottom prices. After negotiating new licenses with local authorities, it recycled both the production facilities and the equipment to serve its existing product lines. In recessions, the company used this same approach to acquire competitors or other companies with weak financials or less stomach for a prolonged downturn. This strategy, executed consistently ever since, helped Trinity grow to become a Fortune 1000 multi-industry company.

3. Invest for the future.
Corning Incorporated
The 1970s proved to be a very difficult time for Corning, by then the world’s largest specialty glassmaker. Deprived of its most profitable product, television tube glass, when its main customer, RCA, entered the market several years earlier, the company now had to cope with lower margins and smaller volumes for the superior product engineering and design it offered. (TV glass was by far its largest market.) Windshield safety glass, 10 years and millions of dollars in the making, had proved to be a complete flop. And in 1972, its headquarters only just survived a devastating flood in the wake of Hurricane Agnes. Faced with a disastrous drop in demand during the Great Depression, Corning had stuck doggedly to its own path, rejecting layoffs and rigid cost-controls in favor of more creative responses designed to generate growth in the long run. But the 1970s was different. After two decades of postwar prosperity, Corning was a much larger enterprise ($1 billion in revenue by 1973) with a generation of professional managers and world-class researchers that had never experienced a significant downturn. Moreover, it was now a public company with shareholders to please. Corning executives had to make some painful changes. Reluctantly, they cut costs and wrung savings out of manufacturing and operations through improvements in productivity and process. Using the “growth-share” matrix then in vogue, they also abandoned many longterm investments in basic research—especially smaller, loss-leading projects that helped develop a critical storehouse of knowledge and experience for use later on—in favor of targeted, short-term projects with a guaranteed payoff. What hadn’t changed, though, was the deeply ingrained spirit of prudent risk-taking and creative autonomy which encouraged Corning’s scientists to pursue promising new ideas as time permitted. This approach proved crucial to the development of optical fiber.

Corning’s optical fiber project began in 1967 with an inquiry from the British Post Office (now British Telecom). For both technical and commercial reasons, the market for optical fiber was widely thought to be 20 years off, so this project struggled to attract support from an executive corps focused squarely on profitability. Then in 1970, Corning researchers, drawing on proprietary techniques developed earlier, managed to breach a critical light-attenuation barrier, rendering long-distance communication via optical fiber feasible in the near term.

To develop this technology for a commercial market completely new to Corning would require high levels of investment with no immediate return. In the current economic climate, there was little appetite for that kind or risk. So the project personnel had to be creative. Building on a long-standing Corning tradition of leveraging proprietary knowledge through collaborative relationships with outside organizations, they negotiated a cross-licensing relationship with AT&T to gain access to Bell Labs and its laser work, and then established alliances with five major cable manufacturers to fund additional development. This was enough to sustain the project (and their jobs) through the mid-1970s, by which time they had been issued twelve critical process patents. Still, the project carried enormous personal risk for those involved— including Amo Houghton, Corning’s CEO and a member of the family still with a significant stake in the company. Houghton, who signed the requisition for plant investment in optical fiber in 1975 with the papers for the company’s first major layoff sitting on his desk, insisted he would have been fired were it not for his family ties.

Corning’s break came in 1982, when AT&T was broken up by court order and MCI emerged as a competitor. Fifteen years after the start of the fiber research project, MCI placed the first large order for optical fiber. By 1984, Corning was not only the largest supplier of optical fiber in the world, and through an alliance with Siemens, for optical cable as well. It had also helped to transform the market for telecommunications.

4. Build loyalty through purpose and appreciation.
Hewlett-Packard
After the Second World War, as the United States shifted to a peacetime economy and government contracts dried up, most high-tech firms laid off engineers en masse. Hewlett- Packard, founded just a few years earlier, did not. Rather, it saw this as a unique opportunity to recruit talent, even if it didn’t have much work for them to do. When the economy rebounded, their competitors struggled to fill positions, but HP was able to rely on a loyal workforce who knew the company would stand by them in difficult times.

© Copyright 2009 The Winthrop Group, Inc. All Rights Reserved.

The onset of the Great Depression, to which this recession is most often compared, was greeted with a similar sense of foreboding. Within two years of the 1929 stock market crash, U.S. industrial output had plummeted, gross domestic product had fallen by a third, and unemployment had soared to 25 per cent. The conventional wisdom, then as now, argued in favor of consolidation and retrenchment in the face of economic crisis: cut costs, hoard cash, and (hopefully) ride out the storm.

History points to a wiser course of action. In fact, some of the most successful companies of the 1930s rejected conventional wisdom in favor of what Joseph Schumpeter later called a “creative response”, by which they sought to shape and use change for their own purposes. To be sure, their strategy was counter-intuitive: invest heavily in outstanding people and ideas, engage in inspiring, purposeful activity, and act independently of competitors and analysts’ expectations. But it worked. Faced with prolonged economic weakness, these firms managed to seize control of their own destinies when others were foundering and to lay the foundation for robust growth in the years ahead.

Four principles define this creative response:

1. Take the long view.
2. Take advantage of down markets.
3. Invest for the future.
4. Build loyalty through purpose and appreciation.

In this essay, we explore how several Depression-era firms, both in the United States and abroad, used these proven principles to navigate even more treacherous times than we face today—and emerged stronger as a result.

1. Take the long view.

Before 2008, nearly a quarter-century of steady economic growth and rising share prices had conditioned investors to expect more of the same. Managers, in turn, became prisoners of those expectations. Too often, they pursued short-term strategies designed to sustain earnings and profitability while neglecting long-term investments in areas like basic research, recruiting and training, and organizational development—the very things which fuel innovation. The temptation to focus on the short-term is all the stronger in difficult economic times. It is a temptation to resist. Now more than ever, companies must take the long view. Now, when no one expects a profit, is the time to rethink the balance of short-term and long-term investment and set the stage for future growth and competitive advantage.

The American automotive industry was among the hardest hit by the Great Depression, with production off by more than 75 per cent from its late 1920s peak. Yet the most innovative of these companies used this otherwise bleak time to develop new products and markets that would bear fruit over the long haul. Take Thompson Products (now TRW). When General Motors announced the closing of its Muncie, Indiana products division, Thompson’s new president, Fred Crawford, negotiated financing from GM itself to purchase the plant equipment and then supply GM with valves and other products at a 10 per cent discount, which in turn went to pay off the debt. Crawford also invested in new products with patented designs that required a high-level of engineering and manufacturing skill to produce in volume and thus commanded a higher margin. In addition to sustaining Thompson through the downturn, these products became pillars of its expansion when economic growth resumed.

Timken Company, a leading manufacturer of bearings and steel, took a similar approach. Diversification into railroads and other industrial applications in the 1920s had helped to soften the impact of falling demand in the automotive sector. Now, even as the crisis deepened, the company continued to expand into new markets for bearings and became a major producer of alloy steel and a leader in seamless tubing, all financed through earnings rather than debt. Far from alienating investors, this long-term focus earned their confidence. “Timken will ride out the storm,” the Magazine of Wall Street assured its readers after the company posted its first net loss in 1932, “and will return to satisfactory profits whenever normal industrial revival sets in.” As it happened, its first net loss in 1932 was also its last—for 50 years.

Meanwhile, Procter & Gamble was busy pioneering brand management. The maker of Ivory soap, Crisco shortening, Oxydol laundry detergent, and countless other household products, P&G had long struggled to integrate research and development, production, merchandising, marketing, and distribution. In 1931, based on a three-page memo from a young advertising manager named Neil McElroy, P&G assigned dedicated teams to market individual brands as if they were separate businesses. Today, that is common practice; then, it was revolutionary. Indeed, it remains one of the signal innovations in American marketing in the 20th century. What’s more, P&G had the courage to embark on a major reorganization just as the world economy was beginning to sink into Depression. And it didn’t stop there. Two years later, the company launched a radio program called Oxydol’s Own Ma Perkins—the first soap opera. By the late 1930s, P&G dominated national network radio with five hours of sponsored programming every weekday.

Doing Great Things in Hard Times

When workers started construction of the Empire State Building in March 1930, the future of commercial real estate in New York looked grim. But General Motors Vice-President and financier John Jacob Raskob, locked in a competition with Walter Chrysler to build the world’s tallest skyscraper, would not be deterred. He held his nerve, and persuaded his investors to hold theirs. Just 14 months later, the building was completed, under budget and ahead of schedule.

At first, the Empire State Building had trouble attracting tenants—according to one account, the observation desk earned as much in visitors’ fees during the first year as the owners did in rents. Still, long before it sold in 1951 for a then record sum of $51 million, it would come to symbolize the grit and determination of New Yorkers. Today, few would doubt the iconic and financial value of the Empire State Building.

Elsewhere, the Hongkong and Shanghai Banking Corporation (now HSBC) was wrestling with its own challenges: a monetary crisis in Britain, the impact of depreciated silver, and a deepening global downturn, as well as growing nationalist sentiment and political instability in China and the specter of Japanese aggression. Survival did not come without sacrifice, but the Bank made sure that sacrifice was broadly shared. In addition to reductions in salaries and allowances, the Bank cut its annual dividend and used the savings to build up a sizeable sterling reserve fund. This long-term focus, it turns out, gave the Bank the flexibility it needed to manage the crisis on two fronts.

Thanks to those robust reserves, the Hongkong Bank was able to provide critical exchange banking in the region. In 1935, it helped the Chinese government to weather its own monetary crisis and make an orderly exit from the silver standard. Amidst heavy speculation in gold and silver, this was no mean feat. As V. M. Grayburn, the bank’s chief manager, put it: “I would not say we came through unscathed, but I can safely say that we found ample balm to cure any bruises we received.” When Japan invaded Manchuria in 1937, the Bank continued to defend China’s currency.

Despite its growing international stature, the Hongkong Bank was above all a local bank. Founded by the Hong Kong trading community to finance trade between Hong Kong and the United Kingdom, it had long supported development initiatives in mainland China, including factory construction and railway expansion, and it continued to provide this vital service during the difficult decade after Chinese nationalists came to power in 1928. In Shanghai, for example, it made a major rehabilitation loan to the Municipal Council in 1932, and agreed an innovative debenture scheme with the Shanghai Power Company. The success of these operations and others like them led to still more business in the Shanghai market. In fact, this active local investment policy, together with the prudent management of its currency reserves, enabled the Hongkong Bank to maintain a high profile in the East even as other banks had pulled back. This paid rich dividends after 1945, when the Bank enjoyed extraordinary growth.

2. Take advantage of down markets.

The sharpest, shrewdest firms see economic crisis not as the apocalypse but as merely another business environment rich in opportunity. This is precisely the time to acquire knowledge, expertise, and assets which in better days could never have been afforded, as competitors vied for labor, capital, and capacity.

Thus did Corning, a maker of specialty glass and ceramics, use the worst years of the Depression to recruit a cohort of gifted young research scientists from leading universities. The most notable of these was J. Franklin Hyde, a bright organic chemist from Harvard. For Hyde, Corning was an unlikely choice. The company had done nothing to date with organic chemistry, and he already had an attractive offer from the much larger DuPont. But Corning wanted him badly enough to outbid DuPont by $200—no small difference in the midst of the Depression. It also offered him what DuPont could not: contacts at companies like General Electric, which did have an organic chemistry program; a reputation for doing work in the latest scientific developments; and most important, an exceptional degree of freedom in research and experimentation. For Corning, it proved to be a wise investment. Before the decade was out, Hyde would go on to invent both the vacuum deposition process, critical later to optical fiber, and silicone, a compound with a wide range of applications in cookware, adhesives, lubricants, and glass. Thanks to this fresh infusion of talent, Corning witnessed a surge in research productivity during the Depression that paved the way for several new businesses in the decades after the Second World War.

Siemens, even in the economic and political tumult of Germany in the 1920s and 1930s, was similarly opportunistic. It could afford to be. Unlike its main competitor, Allgemeine Elektriciäts Gesellschaft, which had undertaken heavy debt on overvalued assets, Siemens had stuck to a conservative financial approach. When hyperinflation struck in 1923, it had enough cash on hand not only to sustain its elaborate benefits programs and avoid major layoffs but also to expand and diversify through selective acquisitions—including Reiniger, Gebbert & Schall in 1924. At the height of the Great Depression in 1932, Siemens merged RGS with other interests it held in medical devices, building the world leader in electrical medicine. At the same time, it centralized R&D functions into a single department dedicated to fundamental research. In 1935, at considerable risk to its position under the new Nazi regime, it recruited a Nobel Prize­winning physicist, Dr. Gustav Hertz, to lead its research effort, after Nazi race laws had forced the half-Jewish Hertz from his academic post.

3. Invest for the future.

In good times, most companies tend to invest in people, capital, and ideas only in so far as they promise to yield immediate returns. It is the rare firm that has the courage to make investments in fundamental research that may not produce marketable products or higher productivity for a decade or more—and rarer still the firm that can sustain those investments in lean times. In fact, some of the most visionary companies have used economic crisis to cultivate innovation and nurture success over the long term.

Alcoa was a prime example. By 1929, aluminum had become a common metal with a wide range of applications, but for the next five years, aluminum sales and profits languished. Still, Alcoa plowed ahead with basic research, and to great effect. From its Aluminum Research Laboratories, opened in 1930, the company developed most of the basic and wrought alloys that would dominate the market for the rest of the century. It worked with leading edge customers and strategic partners in search of new prototype applications. And it continued to recruit talented research scientists; by 1940, it boasted more than 200 researchers with advanced technical degrees. True, Alcoa’s research budgets declined during the worst years of the Depression. But the company took pains to defend its program at a time when investment in industrial research was suffering under a growing public backlash against technology of any kind.

The Radio Company of America (RCA) offers one of the most striking examples of investing for the future. When most of his counterparts were cutting discretionary spending, RCA’s chief executive, David Sarnoff, was pouring money into research—especially television. The breakthrough advance in early television, an understanding of the fundamentals of vacuum tubes, came in 1930. Over the next few years, RCA launched an extensive program of field testing, recruited or promoted a large group of technical experts, built transmission and relay systems, and filed dozens of patents on new products and processes related to this new technology. By 1939, RCA’s work was the talk of the New York World’s Fair.

All of this did not come without opposition, of course. Sales were down, reinvestment in production facilities was an urgent and costly priority, and RCA’s operating managers were hardly enthusiastic about long-term research. This lack of support would almost certainly have spelled the end of television at RCA were it not for Sarnoff’s decision (mirroring that of Siemens and other innovative Depression-era firms) to establish a unified corporate research program, focused on fundamental research into leading-edge products and funded centrally. As Sarnoff later recalled, “We cut costs, we cut salaries, we cut everything but research while the storm was going on.” This was decisive in making RCA the leader in television for decades to come.

4. Build loyalty through purpose and appreciation.

One of the keys to building a successful enterprise over the long term is a clear, consistent corporate purpose that can unite and inspire people. Large-scale, indiscriminate layoffs do serious, perhaps irreparable harm to that sense of purpose. Not only do they deny the company the skills and experience it needs to meet demand once recovery begins, but they also undermine the loyalty of the people who remain, leaving the firm’s best talent vulnerable to competition later on. On the other hand, companies that find creative ways to retain employees and engage them in inspiring, purposeful activity, in spite of budget cuts, will build enduring loyalty while at the same time unleashing innovation.

The example of the Royal Dutch Shell Group is a cautionary tale. The firm’s main response to the Depression was to undertake massive job cuts. While this enabled it to protect its financial position in the short-term, it struggled for years afterward to recruit university graduates, as university staff warned their students away from Shell lest they be fired at the next downturn. RCA did just the opposite and benefited as a result. By cutting hours and bonuses, Sarnoff preserved jobs—especially in research, which earned him the abiding personal loyalty of many researchers who had seen their colleagues laid off from other companies.

Timken, too, went to great lengths to avoid layoffs, even as conditions deteriorated. Instead, it shut down plants for two weeks in July. It retained its most experienced workers in engineering and production by asking them to take unpaid leave for a few days each month. Later, it instituted a three day work week and reduced the standard workday from 10 hours to eight. And it adopted a sliding scale of salary reductions based on income level for white-collar workers, including the company’s top executives. Thanks to these enlightened policies, Timken was well-positioned to meet demand when conditions began to improve in 1933. Within a year the company had raised wages and salaries by 11 per cent, effectively restoring its earlier across-the-board cuts. At no point had it sacrificed performance. On the contrary, Timken established a reputation as one of the most solid, well-managed industrial firms of the Great Depression.

Corning, for its part, maintained steady employment levels by taking on low margin work it would ordinarily have refused—an investment that would pay for itself many times over. The Mount Palomar Observatory project is a case in point. When the original contractor, General Electric, ran into severe technical problems and cost overruns in 1932, Corning stepped in with a new design for the telescope’s 200-inch mirror, then the largest piece of glass ever cast. Unlike GE, which priced its project to support new, custom-built facilities as well as labor and profit, Corning relied on existing facilities, enabling it to charge cost plus 10 per cent. This was a small price to pay for an opportunity to tap into a growing market. The Mount Palomar project also reinforced in the public mind a direct connection between business and research at Corning that only redounded to its benefit. Indeed, more than any other single event in its history, Corning’s investment in telescope mirrors cemented its reputation as a leading-edge research company and yielded a significant, visible, and highly profitable business for the rest of the century.

Learning from Experience

What does all of this mean for today’s firms? As the global economic crisis deepens, it is only natural for leaders to hunker down, waiting for the old boom time conditions to return. But history suggests that at moments of profound disequilibrium such as this, the important thing is to concentrate on finding new sources of competitive advantage under what are sure to be very different market conditions. So it was for the 1930s. More regulation and limited access to capital discouraged the start-ups that had fueled innovation in the chaotic growth of the 1920s. Yet these same conditions allowed well-managed companies like Procter & Gamble, Siemens, RCA, and Corning to pursue a new kind of corporate entrepreneurship based not on immediate demand but on long-term investments in people, capital, and ideas.

Soon enough, our own economic crisis will generate a new and different set of conditions. How firms respond will depend as much on their understanding of the past as on their vision for the future. With the benefit of historical perspective, they will be better able to pose the right questions and to see problems in context, to recognize emerging patterns and combinations, to identify untapped resources, and ultimately to regain control for the long term.

Much in today’s economic outlook may be frightening. Far from all of it is new.

The authors would like to thank Christian Stadler of the Tuck School of Business at Dartmouth for his timely and thoughtful contributions to this paper.

© Copyright 2009 The Winthrop Group, Inc. All Rights Reserved.

For most of its existence, humanity neither enjoyed nor understood society’s capacity for creating wealth and economic growth. Prior to the 18th century, incomes generally hovered near the subsistence level. To paraphrase the 17th-century English philosopher Thomas Hobbes, human life was solitary, poor, nasty, brutish, and short. In the late 18th century, the English economist Thomas Robert Malthus warned that the mass of humanity was doomed to a life at the margins of starvation, as surges of population growth would inevitably outstrip the finite sources of food supply.

Things began to change in the 17th and 18th centuries, when people in Holland and Britain began to produce a little more each year. As the gains added up over time, modern economic growth had arrived. We define economic growth as increases in aggregate real income per person, (that is, income adjusted for inflation). For our purposes, economic growth starts with the Industrial Revolution, which began in the British Isles and spread from northwestern Europe to new areas – North America, parts of central and southern Europe, Scandinavia, and, late in the 19th century, to the frontier “European” societies of Australia and New Zealand, to parts of Eastern Europe and Imperial Russia, and finally, to Japan, the only non-western society to develop before the mid-20th century. In the late 20th century, the diffusion of industrialization spread rapidly to the “dragons” of the Pacific Rim: Taiwan, Hong Kong, South Korea, and Singapore, and then to the former communist countries of Eastern Europe.

Today, several important areas, including China, India, and Eastern Europe, seem poised to experience sustained economic growth as well. And yet most of the world’s population remains poor, earning less than the equivalent of $2 per person per day. Vast areas, including much of Africa, Latin America, Central Asia, the Middle East, and Micronesia, remain mired in grinding poverty, as the gap between the richest and poorest societies continues to increase.

What accounts for such differences? Many analysts focus on issues like culture, natural resources, climate, and political systems to explain the vast differences in economic experiences. But we believe the answer lies in the intensely historical origins of economic growth. History shows that over time, healthy, sustainable economies possess four dynamic, human-made factors: (1) political systems geared to enabling economic growth, (2) an effective financial system, (3) vibrant entrepreneurship, and (4) sophisticated managerial capabilities. In our model, each of these critical factors is represented as a corner of “the growth diamond.” As the illustration suggests, each of the factors interacts with the others dynamically (and over time). Proceeding counterclockwise from political systems to managerial capabilities, each of the facets of the diamond depends on the robustness of the preceding factors.

To read the entire article, published by STERNbusiness, click here.