In order to evaluate Kininmonths argument, that Chandler was not accurate in suggesting that J & P Coats was an example of “personal capitalism”, it must first be established as to what Chandler’s perception of personal capitalism was, and why he recommended that J & P Coats fitted this description. The line of reasoning put forward by Kininmonth, that Chandlers’ depiction of J & P Coats was inaccurate, will be analysed and the validity of the evidence will then be evaluated.
Chandler believed that many large British firms juxtaposed the modern industrial, management based, enterprises that developed in the United States and Germany during the turn of the 20th century, “in a number of capital-intensive industries of the Second Industrial Revolution” (Chandler 1994). He determines that the underlying difference between the large multinational British firms and their American, or German, counterparts was the commitment to personal capitalism, whereby “the perpetuation of family control remained a major desideratum” (Payne 1967). This commitment to personal rather than professional management characterized British industrial capitalism” (Chandler 1994). It is postulated that at the turn of the century due to the, “continuing commitment to personal management and therefore to personal capitalism” (Chandler 1994), British entrepreneurs failed to make the essential three-pronged investment in manufacturing, marketing management; causing a fundamental inequality with those American and German firms that displayed progression into managerial capitalism, that Chandler thought was essential to gain true global competitive advantage.
Kininmonth initially rebuts the notion, “that personally run British companies were incapable of engaging in key investments in relation to production, marketing and management” (Kininmonth 2006), utilising a financial study by Boyns et al on chemical company Albright & Wilson to illustrate her argument. The rationalisation that family centric business organisations would be capable of global competitiveness, in terms of growth and market dominance, seems credible due to the financial figures that were able to be produced, by firms such as J & P Coats and Albright & Wilson, whilst management structures were dominated by the owning families.
This is true despite the inevitable negative impact, manifested in the relatively poor performance in the 1940’s, induced by two World Wars. Although British based firms were able to compete during the second industrial revolution, at a time when globalisation started to see the dominance of economies of scale and scope, Chandler endorses the idea that large British firms had the tendency to be dictated by their commitment to the owning family, stunting their growth in terms of reinvesting profits and employing modern management strategies that could lead to expansion and modernisation.
Central to Kininmonths’ rejection of Chandlers’ argument is the notion that the maintained successful approach to management at J & P Coats was due to its utilisation of family, or personal capitalism. The spreading of family members across the spectrum of managerial structures provided the company with an overall cohesion, and direction.
It could be synthesised that a competitive advantage was established due to the dissipation of the principal agent problem that can occur in managerial based organisations. “Judging by the continued satisfactory performance of the company and its almost constant expansion, it appears that the values and principles of the founders… must be credited with playing a large part in laying the foundations of long-term commercial success”, (Kininmonth 2006).
The personal management of British enterprises such as J & P Coats is derived by Chandler as having an “extensive managerial hierarchy” that was controlled predominantly by the founding family and that the growth and dominance of such firms was thwarted by their resistance to progress into “managerial enterprises”, in which the executives in the administrative committees would not be commanded by the owning bodies, or the founding family, leading to optimum results in terms of growth, profitability, and overall global market dominance (Payne 1974).
Chandler argues that the adequate reinvestment of profits by personally managed companies such as J & P Coats would be of secondary importance to the maintaining of the owning family. In relation to this Kininmonths’ response is that J & P Coats, “continued to reinvest profits and did not hold the view that a large and stable income for the family was more of an incentive than the long-term growth of the firm”. Furthermore she suggests that not only were profits reinvested but the correct strategy in terms of investment were made, “in new technology and distribution methods”.
Proof of this portrayed by Kininmonth, is represented throughout the financial analysis of J & P Coats. Kininmonth draws attention to the fact that, “in June 1890, the decision was taken by Coats to adopt limited liability status”. This highlights that J & P Coats, although dominated by three to four generations of family ownership, was not opposed to the progression that limited liability could give in terms of stock-market floatation and shareholder investment.
Family ownership did not necessarily mean control in terms of managerial decision, “though new managerial talents and/or financial sources were often sought from outside the family circle”, (Dong-Woon 1998) and, “the decision to adopt limited liability, although made possible in 1855, was a subject of ‘heated debate’ and took time to become the established normal practice” (Fligstein 1990).
Chandler suggested that the progression of J & P Coats was held back by its commitment to family, however Wilson exposes a “lack of coordination, poor planning and control procedures, and antiquated reward systems” as the reason for a systematic breakdown of British holding companies (Wilson 1995), whereas the argument is substantiated by Kininmonth that J & P Coats excelled in the tight management structure it incorporated especially due to its centralised sales and distribution team.
It can then be argued that progression is a subjective matter and considering that, “Coats plc is the world’s largest sewing thread and needlecraft supplies manufacturer, processor, and distributor” (www. coats. com), it can be proven that due to its survival in the modern economy progression must have been made. Kininmonth is correct to dispute Chandlers generalisations about management structure and personal capitalism, however J ; P Coates is only mentioned a few times in Scale and Scope and Chandlers’ references to this specific ompany seem to imply that it is an exceptional case. “There were, however, exceptions… One was J ; P Coats”, (Chandler 1994), describing the international sales organisation and decentralised production management which is then attributed, somewhat cynically in my opinion, to an unnamed German manager, “Wilson finds many problems with Chandler’s theories, one being his insistence that the German experience was very much a replica of that found in America” (Kininmonth 2006).
Instances of inaccurate, sweeping statements when comparing American and British businesses are summed up well by Wilson when he notes that Chandler looked at all of the businesses under examination through American-tinted glasses” (Kininmonth 2006). It is important to note that although Kininmonth attributes Chandlers views on J ; P Coates to his affirmative Americanisation, she herself is British born and studied/teaches at Glasgow University therefore her defence of a Scottish based thread company could be said to have personal connotations (tartan-tinted glasses).
One of the biggest weaknesses of Kininmonth argument is that although she provides sufficient evidence that the management of J ; P Coats, and sustained success, was not inhibited by its family orientation, she does not discredit the overall understanding of personal capitalism, put forward by Chandler. It is surmised that although J ; P Coats was a family enterprise and did display some form of ‘personal capitalism’ its overall accomplishments and dominance were hindered by more than its incorporation of family within its management structures (Dong-Woon 1998).
Kininmonths article clearly displays credibility, however I believe that it could have gone further in its establishment that personal capitalism is not depicted as an obstruction but in reality was critical to the success of British companies. Overall it must be conceded that J ; P Coats was a form of personal capitalism, in that it has been evidenced by Chandler that the founding family had significant governance over a prolonged period of time, however to suggest that this deferred from the capitalist ideology of profit, dominance and progression has been clearly discredited by Kininmonth article.
Chandler, Alfred D. 1994 Scale and Scope The Dynamics of Industrial Capitalism, Harvard University Press c474 dc 20. Dong-Woon Kim. 1998 The British ‘Personal Capitalism’: Some evidence on Ownership and Control. The Korean Economic Review, Volume 14 Number 1. Fligstein, N. 1990 The Transformation of Corporate Control. London: Harvard University Press. http://www. coatssewingsolutions. com/sewingsolutions/Site/Home. aspx, accessed 22nd Febuary 2011. Kininmonth, Kirsten W. 2006 The Growth, Development and Management of J ; P Coates Ltd. 890 to 1960: An analysis of Strategy and Structure, Business History Vol. 48 Number 4. Knox, William W. 1995 Hanging by a Thread: The Scottish Cotton Industry, c. 1850-1914. Payne, Peter L. 1967 The emergence of the Large-Scale Company in Great Britain 1870 to 1914, Economic History Review 2d ser 20:534. Payne, Peter L. 1974 British Entrepreneurship in the Nineteenth Century, London: Macmillan. Wilson, John F. 1995 British Business History, 1720–1994. Manchester: Manchester University Press.