Katharina Bart: «Wealthy Families Must Face Uncomfortable Truths»

finews first, familywealth, Sika, Urs Burkard, takeover, Saint-Gobain

Katharina Bart

«From shirtsleeves to shirtsleeves in three generations» is the entrepreneurial adage that the founder's grandchildren are more likely to fritter away the family's fortunes than maintain the corporate jewel. A takeover battle over a Swiss family-owned firm is a widely-watched test case for families looking to cash out, writes finews.ch-editor Katharina Bart on finews.first.


finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The contributions appear in cooperation with Pictet, the Geneva-based private bank. The publishers of finews.ch are responsible for the selection.


Almost every culture – including the Chinese — has an euphemism for the three-generation rule of thumb for family business.

The wealthy have an army of wealth managers, family office specialists, tax and other business advisors at their disposal to help manage a family’s main pot of wealth through several generations, when family members are increasingly spread around the world and interest in running the family’s asset may fade.

Switzerland’s wealthy Burkards are proving a tragic test case for family wealth planning: the clan owns the majority of construction chemical firm Sika, and want to sell their stake to France’s Saint-Gobain for 2.75 billion Swiss francs.

The Burkards aren’t unique in this respect at all: Switzerland and Germany are full of family-owned companies which – like Sika – have at least partially opened to outside shareholders: Volkswagen, Roche, Swatch, Continental, Richemont, Schindler, Merck, Kuehne & Nagel, Porsche, and Vontobel.

«The system scares off hostile takeovers»

Every family is different, but often families like the Burkards and Sika control a majority of the company, despite owning only a minority stake, through a dual-share setup. The system scares off hostile takeovers, and guarantees the family that board and management answer to them.

As a result, most family deals like the Bertarelli family’s $10.3 billion euro sale in 2006 of biotech firm Serono to Germany’s Merck, also a family-controlled firm, change hands with little fuss.

And why shouldn’t they? The whole point of owning an asset is the autonomy to decide its fate – even if that ultimately means selling it several generations on.

A cut-and-dried case of Sika's owners selling out, then? By no means: the Burkards have been locked in a bitter high-profile court battle with the board, management and some shareholders of Sika for nearly two years now over the company’s fate.

«Effectively, no one will come out of this a winner, least of all the family»

The company has won backing from large investors such as Bill Gates' investment vehicle, and event-driven hedge funds have put down bets on the end game, which will almost certainly be in the family’s favor, but not before both sides have poured millions into legal and other fees.

A key court decision later this year may still not be the final word in the dispute, which is likely to be appealed. Effectively, no one will come out of this a winner, least of all the family.

So where did the armada of advisors, private bankers, family planners and other resources that are surely at the disposal of the Burkards fall down in their quest to help the family handle the dynamic of maintaining and handing down a business asset through several generations?

The answer is that even the best finance experts cannot smooth over family rifts or foster an earnest involvement in the family business if the spark isn’t there.

«Sika’s CEO makes it clear that the family didn't receive special treatment»

A family representative said that the Burkards ultimately decided to sell after growing increasingly estranged from management, not feeling adequately recognized for company milestones and feeling that they weren’t being taken seriously by management.

Sika’s CEO makes it clear that the family didn't receive special treatment, at least as shareholders.

«We follow the Strategy 2018 with our growth and margin targets and our investment targets. These targets are transparent and well known within our organization and to the financial market, whether these are family investors, funds or retail shareholders,» Jan Jenisch told finews.ch during «stars», a leadership symposium run by an independent foundation based in Stein am Rhein.

«I like to keep it transparent, open and make sure I can run a successful business,» Jenisch said.

«Descendants of the Baer largely abandoned their business ties in 2005»

Clearly, something in the relationship went very wrong, especially when viewed against other family transactions conducted quietly and soberly, such as Serono’s disposal or the retreat of Julius Baer’s founding family.

Descendants of the Baer largely abandoned their business ties in 2005 and gave up control over the family’s asset, a prestigious private bank which traded heavily on the family’s name.

Symbolically, the family’s heritage still plays an important role in the bank’s success today, but the Baer’s family’s involvement in the bank’s affairs today is practically non-existent.

There are examples galore of family patriarchs who cannot let go: logistics scion Klaus-Michael Kuehne remains hugely influential behind the scenes at Kuehne & Nagel despite relinquishing his board seat five years ago.

«Descendants of the founding family don't always make the best steward of an asset»

The Porsche-Pieches sets the bar for family dysfunction in business: the clan controlling Volkswagen has been largely silent as the carmaker bumbles through a painful and costly emissions scandal, having handed over control of the carmaker to outsiders in the 1970s following a bitter family power struggle.

The Baer and Porsche-Piech families came to very different conclusions about their family asset, but contain one common element: family members appear to have sat down and communicated like business partners, not petulant children harboring a grudge over a perceived or real playground slight.

Both almost certainly sought extensive outside advice – the Porsche-Piechs in what was described by one family member as a countryside «group therapy session». And both were willing to concede that illustrious heritage aside, descendants of the founding family don't always make the best steward of an asset.

Families like the Burkards are often ill-equipped to handle the dynamic of maintaining and handing down a business asset through several generations. A common element in successful family-owned enterprises seems to be family involvement, whether direct or passive.

«There are signs indicating that the Burkards didn’t seek professional advice»

To be sure, there is no guarantee that families produce the most qualified candidates for C-suite jobs in their own firms. But with active family representation in management or at board level, the chances of a growing rift as with Sika and the Burkards is minimized.

In the Sika case, there are several signs indicating that the Burkards didn’t seek professional and objective advice on the complexities and governance of unwinding a nearly 3 billion franc publicly-traded asset – for example from an investment bank.

The Burkard family’s plaintive gripes about feeling under-appreciated and unloved should also be a wake-up call to family office and other wealth advisors: families don't want to hear uncomfortable truths about themselves as businesspeople, but an advisor’s value is his or her ability to prevent a long-winded and ultimately destructive drama like the one now engulfing Sika.

The Burkard family itself conceded as much as the dispute over Sika escalated, saying «hindsight is 20/20» in how it unrolled the deal.


Katharina Bart is a senior contributor for finews.ch and finews.com. She also writes for our Asian partner site, finews.asia. She is a dual Swiss-American citizen with 15 years experience as a journalist, most recently as chief correspondent for Thomson Reuters in Zurich. Prior to that, she wrote for Dow Jones Newswires and The Wall Street Journal from 2003 to 2011.

After studies in journalism and communications at Grand Valley State University in Michigan and the University of Fribourg in Switzerland, Katharina worked for Zurich Financial Services (ZFS), Rieter AG and Friedli Corporate Finance.


Previous contributions: Rudi Bogni, Adriano B. Lucatelli, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Walter Wittmann, Albert Steck, Alfred Mettler, Peter Hody, Robert Holzach, Thorsten Polleit, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Thomas Fedier, Claude Baumann, Beat Wittmann, Richard Egger, Maurice Pedergnana, Didier Saint-George, Marco Bargel, Steve Hanke, Andreas Britt, Urs Schoettli, Ursula Finsterwald and Stefan Kreuzkamp.

 

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