Howard Muson is a writer in Sleepy Hollow, NY, who specialises in management issues and business histories. He is also an associate of Lansberg Gersick LLC, a consulting and research firm in the USA that advises family companies around the world.
Just as the market for its fibre-optic technology began to unravel, Corning published three books to celebrate its 150-year history and a member of the founding family is back at the helm
During the 1990s, almost three decades of research into optical wavelength technologies had begun to pay off for Corning, Inc. The widely admired company, based in upstate New York, sold over two million kilometres of its optical fibres for expanding telecom networks. It was developing photonic devices for boosting and channelling light signals, and acquired two companies for making the cable. With profits soaring, Corning's stock price reached an all-time high of over US$300 before a three-for-one split.
"There is more progress still to come in the application of light to information than we've made since the Mesopotamians first saw that interesting things happened in the combination of fire and sand," CEO Roger Ackerman confidently told a convention of glassmakers. Corning was positioned to become a vertically integrated, major player in the telecom market. Wired magazine listed the company as one of 40 firms driving the new economy.
Then the balloon was punctured. As the worldwide glut in fibre-optic lines became apparent in 2002 and demand for broadband connections stalled, Corning's future suddenly looked very bleak. The company sustained heavy losses for three straight quarters. Its stock price dived as if launched on a bungee cord.
To rescue a desperate situation, James Houghton, 66, the last CEO from the founding family, was called out of retirement in April to resume his duties. What a difference a year makes in the "new economy".
The Houghton family, which had led the company for five generations, had much to be proud of in 2001 when Corning celebrated its 150th anniversary. In connection with the anniversary, the company commissioned three books on its history: The Generations of Corning by Davis Dyer and Daniel Gross, Corning and the Craft of Innovation by Margaret BW Graham and Alec T Shuldiner, and a collection of archival photographs.
However untimely their appearance on the eve of the crisis, The Generations of Corning, along with its companion volume, Corning and the Craft of Innovation, are clear and unusually competent histories tracing the strategic trajectory of an innovative, global company and its organisational responses to punishing business cycles.
Even though the authors, all from the same firm of historians and archivists, had access to the Houghton family papers, the books have very little to say on how the Houghton family operates and how it has made key decisions on ownership and succession. If the family remains in the background of these books, however, that is the way the Houghtons have always wanted it – especially now that their ownership has dwindled to only about 5% of Corning shares.
Inevitably, though, the leadership of the family in shaping the values and dynamism of the $6 billion company shines through. Before looking at the family's contributions, a quick sketch of how the company was built and its five generations of leaders will provide context.
Growth of a core competency
Generation 1: In 1851, Amory Houghton, descendant of a family of farmers and merchants who settled in New England in the 17th century, invested in a glass business in Somerville, Massachusetts. Buoyed by the prospects of glass as a building material, Houghton, an entrepreneur whose fortunes had risen and fallen, bought a glass company in Brooklyn, New York. A wealthy banker and businessman named Elias Hungerford enticed the family to move the company to Corning, a small rural town in the Finger Lakes region of New York.
By then the centre of the glass-making industry, however, had already shifted to Pittsburgh and Ohio, closer to western energy sources and larger markets. Aside from facing severe competitive challenges, the Corning Flint Glass Works (as Corning was originally known) had another handicap: the founder was an unreliable businessman, always in debt. Before long, Corning had declared bankruptcy and was sold.
Generation 2: Two of Houghton's sons picked up the pieces and built a viable enterprise. While working for their father, the more meticulous Amory Jr and his younger brother Charles immersed themselves in the craft and chemistry of glass-making. Within a few years they had saved enough to buy back the company. Instead of competing with the mid-western firms, the brothers specialised in high-profit specialty products, such as coloured glass for railway signals and lanterns, and glass tubing for thermometers.
The fortunes of Corning were lifted by the invention of the incandescent lightbulb in 1879. Aided by restrictive agreements that divided up the market, the company became one of the biggest makers of heat-resistant glass "envelopes" for Edison's electrified filaments. (For years, an agreement with General Electric guaranteed the company 40% of its bulbs.)
Tragedy struck the Houghton family when the ebullient Charles, who was in charge of sales but disliked travelling and suffered from various phobias, committed suicide. But by the end of Amory Jr's 34-year reign in 1905, the Glass Works was a well-established enterprise, known for its mastery in working with glass.
Generation 3: The line of succession continued through Amory Jr's branch, under his sons Alanson and Arthur. With the rapid expansion of electricity across the country, Corning, still using manual glass-blowing techniques, was unable to keep up with the surging demand for bulbs.
Meanwhile, years of government anti-trust actions had cut into Corning's guaranteed slice of the market. Realising that developing proprietary knowledge was the key to staying competitive, Alanson and his brother established one of the country's first industrial laboratories in 1908.
In the 1920s, Corning developers worked intensively on machines able to produce more bulbs with less and less hand labour. The ultimate expression of their efforts in 1926 was the Ribbon Machine (so named for the ribbons of molten glass flowing through the machine, gobs of which were pressed continuously into moulds). The fully automated machine cranked out 300 bulbs a minute, compared with only two blown by hand.
Corning's growing reputation for scientific and industrial research attracted elite PhDs to Corning to develop new types of glass with multiple applications. Corning soon ventured for the first time into the consumer field, successfully marketing the Pyrex line of baking dishes.
The third-generation leaders were more outward-looking than their predecessors. With Alanson as the senior partner, the brothers built new factories in other cities, licensed their products and technologies, and created joint ventures in the US and overseas. Alanson carried on a family tradition in Republican politics and public service, becoming a Congressman in his early 50s and then, following World War I, serving as ambassador to Germany and later the UK.
Generation 4: With Alanson living abroad and Arthur retired in New York City, day-to-day operations in 1920 were left in the hands of the company's loyal counsel, Alexander Falck. Despite their absence, however, Alanson and Arthur still had control over the major decisions, according to The Generations of Corning. Alanson's only son, Amory, now working at the plant, wrote detailed letters to his father on company activities.
Appointed president in 1930, Amory became the dominant personality in the company. His cousin, Arthur Jr, fulfilled his family obligations and pursued his artistic bent by turning around Steuben Glass, a small shop taken over by Corning in 1918 that made fine, brilliantly coloured cut glassware.
During World War II, Corning plants concentrated almost exclusively on products for the military, such as cathode ray tubes and glass parts for bombers. Once again, government service beckoned for the company's leader: Amory spent the war years in Washington, working on war production, and in London, organising the distribution of materials to the Allies.
Strapped for capital after the war, and to fund a return to civilian production and repay loans needed to pay taxes on Alanson's estate, the company went public in 1945, selling 15% of its shares to investors. During Amory's 34 years as CEO and chairman, Corning further diversified its product line and expanded dramatically, enjoying a decade of resurgent growth after the war. Its biggest money-maker then was picture tubes for the television industry. Sales tripled and the stock price soared.
Generation 5: Amory was named ambassador to France in 1957 and once again a non-family executive, Bill Decker, stepped in as president, although Amory continued to call the shots from Paris. His eldest son, Amory Jr, served his apprenticeship in the company during the 1950s. He became his father's "eyes and ears" at the company and, according to Dyer and Gross, was also a surrogate father to his younger brothers, Alanson and Jamie.
Given the CEO's job in 1961, Amory Jr presided over a "golden age of research" during which the technical staff was doubled. The company's television business was "just raining money out of the sky". Corning Ware, a new line of ceramic cookware "harder than high-carbon steel, many times stronger than glass", also took off. In addition, the company entered another potentially huge market: Corning developers, after a heroic effort, came up with ceramic core for use in catalytic converters.
But the company was rocked by a series of debilitating blows in the next two decades, including oil shocks that drove up energy bills, two recessions and a hurricane that flooded the city and part of the Glass Works. The flood became a metaphor for the wrenching changes to come. Faced with a maturing market for TV glass and household products, in the late 1970s the company was forced into the biggest layoffs in its history, severely straining its bond with the Corning community. To shore up profits, Corning plunged into new types of businesses, investing heavily in laboratories for blood-testing, pharmaceutical services and biotechnologies.
Jamie Houghton, 10 years younger than his brother Amory Jr, took over as chairman in 1983, bringing a style that combined the manners of a gentleman with a toughness that some analysts say the company had lacked – "a steel fist in a velvet glove".
After retiring, Amory became a US Congressman. He has represented the Corning district since 1986, evidence of the trust that the Houghtons continue to enjoy in the community.
Educated like his brother at Harvard University and the Harvard Business School, Jamie led a total quality management (TQM) revolution at the company that produced dramatic gains in efficiency. It was Jamie's legacy to bring to fruition the investments in optical wavelength technologies that Amory Jr had zealously defended during his 20-year tenure. That long-range investment started to pay off spectacularly after the breakup of AT&T in 1982.
Corning was way ahead of competitors in developing single-mode optical fibres and sold bundles of them to new telecom giants such as MCI and Sprint. Under Jamie's non-family successors, the company finally sold off its consumer housewares businesses, which had had serious structural problems for years.
A strong and respectful family
For clear, detailed accounts of how Corning achieved its major breakthroughs, The Generations of Corning and Corning and the Craft of Innovation are both exceptional works. Clearly, among the heroes of this story are glass itself, with its mysterious properties and wondrous transformations, and the generations of researchers who turned it into everything from lightbulbs, to tableware, to massive telescope mirrors, to today's flat-screen, liquid crystal displays.
Both books also contain insights into how market factors such as advances by competitors and pricing have affected Corning's technical achievements. The company spent millions on developing a safer windshield that didn't shatter into dangerous shards, for example, but car manufacturers opted instead for a cheaper windshield glass developed in the UK. An intriguing surgical instrument that cauterised as it cut (dubbed "The Cutter That Cooks") flopped because surgeons found it slightly heavier than the knives they were used to.
Although the Dyers-Gross book is described as a general history and the Graham-Shuldiner work focuses more on innovation and R&D, there is considerable overlap; the two books cover many of the same events and are mostly concerned with industrial research and product development. The co-authors of each book were given freedom to interpret the history as they saw it, assisted by an 11-member committee of current and retired employees, among them Jamie Houghton and two independent experts.
The Houghtons appear to have been free of disruptive family issues; according to these official histories, they have functioned fairly harmoniously through five generations. The Generations of Corning tells us that the relationship between Amory Jr and his father "was strong and respectful and neatly replicated that between Amory Sr and his father, Alanson B Houghton". Similarly, sibling partners appear to have gotten along well and regarded each other with affection. For example, the book quotes warm letters exchanged between Alanson, when he was serving abroad, and Arthur, retired in New York City. The brothers also maintained adjacent summer homes in Massachusetts, which became a compound for clan gatherings.
Nor was there any apparent discrimination against in-laws. Glen Cole, who came to Corning as a lab assistant and married Alanson's daughter, rose in the executive ranks and served as president of the company during World War II.
A family issue did arise over the behaviour of one of Arthur Sr's in-laws, George Buell Hollister, sales manager for Corning in the 1920s. Complaining that on his sales visits Hollister always left behind a "bad feeling", a Westinghouse executive refused to see him again. Westinghouse was a big customer and Corning president Alexander Falck wanted to fire Hollister. But the Houghton family stood by Hollister and he kept his job.
Missing: the Houghton women
The women in the Houghton family are virtually absent from both volumes – a glaring omission. We learn that Mrs Amory Houghton Jr was a talented musician who, at a benefit for local Episcopal Church in 1872, "played the piano admirably". But neither history tells us whether Houghton women ever had any interest in joining the firm or made any contribution to its success.
However, another book reveals that the matriarch in the fourth generation, Laura Houghton, played a powerful role behind the scenes. In an interview with Jeffrey Sonnenfeld for The Hero's Farewell (1988), Amory Jr spoke glowingly about his parents. "My father was a fabulous person," he said. "He and my mother were a great team. He was far-sighted and an astute executive, but there was a special glue that my mother gave to us all."
Amory Jr also credited his mother with calming sibling tensions with younger brother Jamie. "I have a terrific relationship with my brother. And, you know, we're not without individual ambitions either, but we've been able to work it out.
"In families that have succeeded with a string of internal leaders," he concluded, "it is often due to the influence of the mother." Sonnenfeld, the associate dean of the Yale Graduate School of Management, cites another factor in the smooth successions at Corning: Houghton CEOs, such as Amory Jr, have been able to find a life in service outside the business and have tended to retire early, in their 50s, making way for younger leaders.
Family tradition is woven in the Corning culture, accounting for much of the company's strength and adaptability. A high tolerance for risk and reverence for R&D spending are woven tightly into that culture. Aware of their vulnerability from larger competitors, the Houghton leaders have been willing to place big bets. According to the Dyer-Gross book, a quote attributed to the second-generation leader, Amory Jr, is repeated like a mantra in the family: "Every day of my business life I feel I'm walking along the edge of a precipice. At every step I must be careful that I don't fall in."
High levels of investment
During the 1980s, Jamie increasingly saw the company's continued high levels of investment in optical wavelength technologies as an inherited burden. But he was aware of a family rule never to cut R&D spending, according to the Graham-Shuldiner book. "Investment in R&D was an article of faith in my family," said Jamie. "My brother and I learned that as children."
From the beginning, family leaders recognised that in order to attract top-notch scientists and industrial researchers to Corning, it was essential to respect and reward them, and support economic and cultural development in "the Crystal City". Technicians were treated like junior partners by Alanson and Arthur, founders of Corning's laboratory. Over the years, several technicians rose to top executive positions, among them former presidents Eugene Sullivan and Tom McAvoy. In recent years, the company has made determined efforts to recruit more women and minorities into its executive ranks, and is hailed as one of the best companies to work for in the US.
The lesson is: if your family controls a company that is dependent on the contributions of thousands of employees, you don't think of it as your family's company. Indeed, the "generations of Corning" of the title is meant to embrace not just the Houghtons, but all those people who have made Corning a special company, once described by Fortune as "a scientific powerhouse, a national treasure".
In 1993 on a business trip to London, Jamie was hit by a car. During his long recovery from multiple fractures, he decided it was time to plan for succession; three years later, he installed Roger Ackerman, a non-family executive, as CEO. With margins shrinking on several products, Ackerman was faced almost immediately with a drastic choice: the company could no longer afford to nurture two businesses with great future growth potential. They were draining the company's resources and one of them had to go.
Eggs in one basket
Management decided to place most of its chips on fibre-optic technologies, and to spin off its highly profitable Quest Diagnostics lab-testing business and Covance pharmaceutical services businesses. In two strokes of the axe (known as the "spin-spin"), Corning cleaved off $2.1 billion in revenues and 22,500 employees. (The decision to shed the clinical labs was hastened by the furore over Dow Corning's silicone breast implants, which made Corning realise that the health area was fraught with litigation risks.)
It is not clear why the Corning board decided to replace Ackerman and another non-family executive, John Loose, with Jamie Houghton, who had been in retirement since 1996. Jamie brings long experience in management of the company and a reputation for making the hard decisions: both may be necessary to restore investor confidence. Just as important is having a Houghton at the helm and may make it easier for employees to swallow the bitter pill of massive downsizing.
In his return engagement as CEO, Jamie is once again walking along a precipice. While Corning waits with fingers crossed for a renewal of telecommunications and broadband growth, the Houghtons, who still control a large bloc of voting shares, will be drawing on the fund of trust built up over 150 years with employees, customers and the Corning community.