Why Private Companies Are More Innovative

This is a guest blog by Venessa Wong, who joined BusinessWeek’s Innovation+Design team in June.

Do privately held companies have an edge when it comes to long-term innovation? At least some of them seem to. Recently, Al Gore—former Vice-President and Senator and now Nobel Prize-winning environmental evangelist—declared S.C. Johnson & Son one of the most sustainable companies in the world.

I caught up with H. Fisk Johnson III, chairman and chief executive of the Racine (Wis.)-based company behind brands such as Ziplock, Pledge, Windex, and Glade, after Gore spoke at the Cornell Global Forum on Sustainable Enterprise in New York on June 3, to hear what makes his company such a standout. Full disclosure: The event was sponsored by the Johnson School of Management at Cornell University, which was named in 1984 after its Johnson family benefactors. Fisk Johnson is also an alum, with five degrees including a 1986 PhD in physics.

(To hear Johnson in his own words, click here.)

Johnson, who took over in 2004 as the fifth generation of the founding clan, said at the forum that privately held companies like his can look out 10, 20, or even 50 years without backseat driving by Wall Street. That permits him to walk away from products that do not meet environmental expectations. Public companies, on the other hand, face “the tyranny of the quarterly report,” as Gore phrased it. "If you pay people to maximize returns on an annual or quarterly basis, that’s what they’ll do,” said Gore. This year only three of BusinessWeek’s 50 most innovative companies are private, but as Michael Mandel's cover story of our current issue argues, the commercial impact of many new products in the U.S. over the past decade have fallen short of expectations. One reason: Short-term targets too often undermine the development of truly disruptive technologies. For innovation to flourish, companies, both public and private, need to be free to consider the lasting impact of their goals.