This article first appeared in Corporate, The Edge Malaysia Weekly, on June 27 - July 3, 2016.
AT first glance, three of the most successful family-owned companies in the world do not appear to have much in common. One is a centuries-old European banking dynasty and the other is a fashion and fragrance empire from Spain. The third is a leading winemaker in France.
The single unifier: They have all gone through periods of ugly family rows.
According to British financier Sir Evelyn de Rothschild, who is a member of the well-known Rothschild family and chairman of
E.L. Rothschild LLC — one of the largest financial groups in the UK — every family has UFR, the acronym he gives for “ugly family rows”.
Pierre-Emmanuel Taittinger, the outspoken president of Champagne Taittinger, found himself embroiled in one 11 years ago. Champagne Taittinger, which traces its history to 1734, was sold in 2005 to US private investment firm Starwood Capital Group LLC following years of bitter infighting among various family factions.
“The official reason given for the sale was the mounting French taxes. Unfortunately, the real reason was that the second generation [of Taittingers], who were extremely brilliant, became old. This is a huge problem in family businesses when age [takes precedence] over talent,” recalled Pierre-Emmanuel, a grandson of the founder and who represented the minority faction opposing the sale of the family business back then.
“My family became old and when you are old, sometimes you don’t believe in your kids anymore. You [only] like people who flatter you. The real reason why we sold the group [in 2005] was not because the group was doing badly [financially], but because of jealousy among the family members,” he told an audience about family businesses, a topic that took centre stage at this year’s EY World Entrepreneur of the Year forum in Monte Carlo, Monaco, held from June 7 to 11.
Nevertheless, when Starwood decided to sell the champagne division a year later, Pierre-Emmanuel, together with several members of the Taittinger family, was able to buy it back minus the group’s hotels. Today, he runs the company with his son Clovis and daughter Vitalie. One of the world’s largest champagne companies, Champagne Taittinger produces some 400,000 cases per year of cuvées and owns more than 650 acres of vineyards.
“I didn’t do it for my ego but the employees of Taittinger,” Pierre-Emmanuel said of the buyback.
He took the helm of Champagne Taittinger in 2007 and has since put in place a new family business succession model that includes a mandatory retirement age of 65. Pierre-Emmanuel himself has announced his intention to retire in 2018.
“On May 6, 2018, I will leave the company when I turn 65 because I suffered too much from seeing brilliant people becoming old and stupid. This can happen to all of you. We can stay on as shareholders, but we don’t have to hold big positions. When we are rich inside, we don’t need to have a position to stay rich,” he explained.
“Also, if in your family, a member, no matter how brilliant he or she is, brings jealousy, you have one thing to do — fire him or her immediately.”
Emotion aside, Pierre-Emmanuel is careful about mixing business and family, ensuring that the managing director’s post is held by a non-family member. “To fight against the ego of the family, we need to give the same powers [of management] to the MD because it is better to have two [people] to make a decision than one.”
For his part, Pierre-Emmanuel has given the managing director the possibility of vetoing his decisions.
On passing the baton to the next generation, Pierre-Emmanuel said he has groomed four people to take over Champagne Taittinger’s presidency. “I have spent the past 10 years preparing for this moment.”
Marc Puig is the 14th member of the third generation of the Puig family that retails world-renowned fragrance brands such as Carolina Herrera, Nina Ricci and Paco Rabanne. The company has put into place certain processes and systems that limit the powers of the family in the firm’s operations.
“For instance, at the holding company, we have a nomination and compensation committee that sets the leadership solutions and compensation from the family. This committee is composed 100% of non-family members. That is one way of limiting the powers of the family,” said Marc, who is the chairman and CEO of the company.
“At the operating companies’ level, the composition of the board has more non-family members than family members. Well, so far, so good.”
Puig’s market share in the global fragrance industry, where it competes with the likes of Chanel and Dior, has risen from 3% in 2004 to 9.5% now.
“In the last four to five years, we advanced so much in the industry that multinationals started looking at us and want our people. Our biggest concern is how to attract talent.
“One way to do that is to have an ambitious project that makes people feel challenged and maintain a set of values like the fact that our business has been around for 100 years. That makes the company attractive, and then pay them well. That is the biggest concern I have, not the [family] legacy. I am very respectful of what they (forefathers) have done, but when I took up the job as CEO, I told them not to get upset with me if I don’t always follow [their rules]. If that’s fine with you, then I will take up the job,” said Marc.
“We know that values are important. The way you treat people, help people grow, be approachable and be fair. It is difficult for me to describe these values because to me, it is the normal way of doing things. Yes, we have tried writing them down, that is, certain ways of doing things that are ingrained in our family.”
The Puig group has seen its fair share of crises since it was founded in 1914. A series of acquisitions in the late 1990s had left the company with an unsustainable amount of debt in 2004.
“In hindsight, when you have a crisis, it forces you to change. It is more difficult to change when things are going well,” said Marc, who had taken some tough decisions, including selling subsidiaries and closing factories in the past as part of the company’s recovery plan.
For family business leaders, succession is a major subject on their minds and it is no different for Marc, who said the fourth generation of the Puig family, which currently comprises 25 members ranging from ages zero to 30, will no longer automatically be made employees of the group.
“We have told them that after this point, they will not work in the company and that they will have to find their own way. The reason is that before I took over as CEO, we have had four leadership solutions in three years. The process was painful and left [us with] some scars,” he said.
However, Marc acknowledged that this can cause problems because the next and future generations of the family can become unattached to the business.
“But if the board thinks that a family member has done an amazing job [outside and want him to join the company], then he may be able to come into the business,” he explained.
Still, Marc believes that rather than limiting the group to a small talent pool of 10 to 15 individuals within the family, which can eventually lead the business to falter, it can now choose from the world’s pool of the best of the best. “The [family] genes do not necessarily own the entrepreneurship traits. Rather, we try to educate them (future generations) to be good shareholders, and not necessarily as leaders of the company.”
“Certainly, it is difficult for a family business to last for more than three generations, but there are some companies that have done so. It means that it is possible,” Guido Corbetta, a professor of strategic management and AIdAF-Alberto Falck Professor of Strategic Management in Family Business at Bocconi University in Milan, told The Edge on the sidelines of the forum.
Corbetta is of the view that if family businesses hope to continue into the next generation, they will need to ensure that the generational transition process, the relationship among the family members and the structures of the company are well organised.
“Obviously, there is the risk of losing the entrepreneurship spirit when you are managing a more complex family structure,” he said.
“The fact is that family businesses remain the core [feature] of growing economies. Family businesses account for 80% to 90% of companies worldwide. [There are the] private firms where families own more than 50% of the voting rights and publicly listed companies where family businesses hold at least one third [of the shares],” said Rothschild’s Sir Evelyn.
“It is the adaptable family business that will always win the day.” The Rothschild Group was founded in 1798 and is one of the world’s oldest family-controlled investment banks in the world, proving otherwise the popular Chinese saying that “wealth does not go beyond three generations”.