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This book is dedicated to our mothers, the lionesses

Successful on and off the stock exchange

Governance practices in family firms

1.Introduction

Acknowledgements

2.Go public or stay private?

What is a family firm?

Life cycles of family firms

Listed firms

Distribution

Going public

Objectives behind going public for our family firms

Comparison of the governance practices

Ownership structure

Strategy

Board of Directors

Transparency

Managing relations between the family and firm

Conclusion on governance

Discussion between Dr Karl-Walter Braun, Dr Bianca Braun and Dr Sonja Kissling

3.Types of family firms

The Puma: powerful and independent

The Hippo: proud and family-conscious

The Octopus: active and versatile

The Mammoth: tough and value-oriented

4.Findings

5.Appendix

1.Introduction

The stock exchange and family firms – two irreconcilable terms upon first glance. First of all, they represent a range of different values and characteristics.

Listed firms are typically set in contrast to privately-held family firms and in this comparison, listed firms tend to perform worse. Reasons cited for this lower performance are the short-term outlook of the listed firms and managers acting in their own personal interest. The exposed and heavily regulated stock exchange environment does not permit autonomous players much room to manoeuvre. In comparison, privately-held family firms typically comprise a strong and trustworthy anchor shareholder, long-term strategies, free enterprise and owners who act in the public interest. In this world, personal and long-term business relationships are the ones that count.

In view of this, going public seems to mark the beginning of the end for family firms. Family firms are simply not compatible with the stock exchange environment as it requires an entirely different type of governance. The likelihood of the family exiting the firm after the IPO is near certain. The family assumes the role of deserters as traditional family values have no place on the world’s trading floors.

This assumption and fundamental belief formed the basis of our understanding when we embarked on writing this book. We expected to see a clear division between listed and privately-held family firms. So, we asked ourselves the following question: How do listed family firms differ from non-listed family firms? More specifically, what are the different governance practices exercised by listed and non-listed family firms?

We have both held a keen interest in this topic for a long time, for different reasons.

Over a decade ago, Bianca Braun wrote a dissertation on the successful management of privately-held family firms and is still convinced that maxon, her family firm, is shaping its future as a private company. Despite her clear convictions, she nevertheless wanted to explore the reasoning behind the “other side” of the argument.

Early in her career as a lawyer, Sonja Kissling gained first-hand experience in helping companies go public and an insight into the legal challenges posed by an IPO. She now acts as a consultant for family firms on the topic of governance, working with both private and listed firms.

In our quest to find out how governance differs between listed and privately-held family firms we dissected the various individual elements of governance and drew comparisons between them. The key aspects of our analysis were the ownership structure, the Board of Directors, the strategy and the information policy of each of the family firms we looked at. It was not long before it dawned upon us that our fundamental hypothesis was not necessarily correct: Although listed firms are subject to stricter formal requirements, in particular with regard to transparency and the composition of the Board of Directors, going public proved to be less of a distinguishing characteristic with regard to the governance of family firms than initially presumed.

Over the course of our research, we spoke with family members from ten listed and ten privately-held family firms, examined their governance practices and consequently were unable to pinpoint any clear divisions. In this respect, our findings could perhaps be regarded as disappointing, as they did not lead to confirmation that going public is indeed the key differentiation criterion for the governance of listed and privately-held family firms.

However, our research did shed some light on some interesting facts: Perhaps most importantly, it indicated that going public does not mark the end of a family firm. In fact, quite the opposite: Numerous listed family firms have been successful players on the stock exchange for a long time. Some of the family firms we spoke to have been listed on the stock exchange for over thirty years, and the owner families behind the firms have no intention of exiting any time soon. Various stock indices and academic studies have proven that listed family firms often tend to outperform other listed companies. This is regularly attributed to the positive characteristics traditionally linked with privately-held family firms.

We also spoke with privately-held family firms that are in the position to go public at any time, in other words, they are not inferior to listed firms in terms of transparency and professionalism.

We quickly realised that we would need to redesign our differentiation grid and move beyond simply differentiating between listed and non-listed family firms. When analysing governance practices, we were surprised to discover a range of astonishing similarities between certain family firms, regardless of whether they are listed or not. Four different types of family firms emerged: The strong and independent Puma, a family firm still completely managed by its owner family. Or the proud and family-orientated Hippo, which exhibits a breadth of experience in all areas of family governance. We also discovered the active and versatile Octopus, which has a keen entrepreneurial spirit and has diversified its assets. And finally, we were able to observe the tough and value-oriented Mammoth, whose family, against the odds, maintains a very strong influence on the firm. Each type includes listed and privately-held family firms.

This book aims to provide suggestions for families and their consultants who are considering an IPO. It is intended as an introduction to the topic of family firms and going public. We hope that the readers can identify with one of the introduced types of family firms and thus perhaps find an answer to the question of whether the IPO may or may not match the DNA of the family business.

The book was an enriching and educational experience for us both. We relished the opportunity to speak with a group of fascinating individuals and immerse ourselves in their firms and family history. The analysis of the governance practices in place at the various family firms taught us a lot. We learned that governance differs starkly from firm to firm. It is governed by individual personalities and the interaction of various governance practices. In order to truly understand the governance of a firm, it is imperative to look at both individual personalities and the overall composition of the firm. The knowledge acquired during the course of our research has helped us to develop our own practical work: Bianca Braun in her strategic work on the Board of Directors at maxon and other firms and Sonja Kissing within the scope of her consultant activities as the owner of the family governance consultancy firm Family Business Matters.

We would like to take this opportunity to thank each of the family members from the family firms who took the time to speak with us and enable these interesting findings. These interactions provided us with inspiration and motivation. They also highlighted that with this book publication we are covering an area that is still partly unexplored and it is therefore worthwhile to go this way. We would also like to thank the experts who helped us on our way and provided excellent contributions.

Sonja Kissling und Bianca Braun

Acknowledgements

We would like to thank the family members of the family firms who took the time to speak with us. This includes family members that we have known for a long time and have built a personal connection with. We also had the opportunity to get to know other family members and would like to thank them for their openness to us and our book project.

As we primarily focussed on looking at how listed family firms differ from privately-held ones and the impact of going public on the governance of family firms, the topic of the stock exchange and therewith our listed family firms occupy more space in the book. We will also provide more information on the listed family firms, as this information is in the public domain. In the observations that we share in our book, it was very important to us to appreciate the trust that family members have placed in us.

In the following we will call the family firms, whose family members we were allowed to speak with “our” family firms.

FAMILY FIRMS AND FAMILY MEMBERS

T1

Listed family firms1

 

Bossard Holding AG, 1831

Fastening technology and logistics

Dr Thomas Schmuckli (pp. 44, 65) and Dr Daniel Bossard (p. 23)

 

 

HIAG Immobilien Holding AG, 1876

Real estate development

Dr Felix Grisard (pp. 22, 34, 70, 72)

 

 

Looser Holding AG, 1928 / 2004

Diversified industry holding

Martin Looser (pp. 25, 33, 72) and Emil Looser (p. 17)

 

 

Roche Holding AG, 1896

Pharmaceuticals

André Hoffmann (pp. 37, 63)

 

 

Schindler Holding AG, 1874 / 1929

Escalators and elevators

Luc Bonnard (p. 52)

 

 

SFS Group AG, 1928 / 1960

Mechanical fastening systems and precision formed components

Nick Huber (pp. 19, 26, 71, 74)

 

 

Stadler Rail, 1942 / 1997

Rail vehicle construction

Peter Spuhler (p. 70)

 

 

TX Group AG (vormals Tamedia), 1893

Media group

Dr Pietro Supino (pp. 26, 46, 73)

 

 

Vetropack Holding SA, 1911

Glass packaging

Claude Cornaz (pp. 24, 49, 60, 73)

 

 

Ypsomed Holding AG 1984 / 2003

Medical technology

Simon Michel (pp. 21, 24, 78)

 

 

Private family firms

 

Artemis Holding AG: Franke Group, 1911

Products and solutions for kitchens and bathrooms (also includes Artemis Real Estate Group, Feintool Group and Artemis Asset Management Group)

Michael Pieper (p. 74)

 

 

Confiserie Sprüngli AG, 1836

Chocolates and pralines

Milan Prenosil (p. 53)

 

 

Endress+Hauser AG, 1953

Measurement instrumentation

Dr h. c. Klaus Endress (p. 80)

 

 

Leister Gruppe, 1949

Plastic welding equipment and machines, industrial process heating products, gas sensor modules and micro-optical components

Christiane Leister (p. 43)

 

 

Liebherr-International AG, 1949

Baumaschinen

Dr h. c. Isolde Liebherr (p. 60)

 

 

maxon motor ag, 1961

Precision small electric motors, drive systems

Dr Karl-Walter Braun

Dr Bianca Braun (Interview p. 89)

 

 

Müllermilch – Unternehmensgruppe Theo Müller, 1896

Dairy products

Theo Müller (p. 51)

 

 

REHAU Verwaltungszentrale AG, 1907

Polymer processing

Jobst Wagner (p. 79)

 

 

SIGVARIS Holding AG, 1864

Medical compression stockings

Stefan Ganzoni (p. 83)

 

 

Weidmann Holding AG, 1877

Electrical engineering, medicine and pharmaceutics

Franziska Tschudi Sauber (p. 50)

 

 

Writing a book is a long way and requires good companions. We would like to thank the following experts for their positive cooperation and extremely knowledgeable and always solution-oriented support throughout the process.

Professor Hermut Kormann, expert on governance in family firms, Ulm

Martin Zenhäusern, leadership and communications, Zurich

Pascal Hubli, attorney at law LL.M., partner at Schellenberg Wittmer AG, Zurich

Esther Hürlimann, editor, book concept developer and publicist, Zurich

Benedikt Flüeler, partner at WBG AG – Visuelle Kommunikation, Zurich

1The year dates, which vary for some firms, refer to the establishment of the original firm and a successor firm or restructuring.

2.Go public or stay private?

What is a family firm?

When writing a book about family firms, the first thing to note is that there is no generally applicable definition of family firms. In practice, family firms encapsulate everything from small regionally active family firms to very large family firms that operate on an international level. Therefore, the size of the company is not a criterion, just as little as whether the firm is listed or not. As a rule, a common parameter used to define a family firm is the ownership structure, i.e. how much of the firm remains in the hands of the owner family. However, this requirement threshold is subject to much variation, ranging from 20 percent for listed firms to at least 50 percent for private firms. Certain definitions also require that family members are not simply the owners, but also maintain a presence in the firm, be it in a supervisory role at board level or even in an operational role at management level. Other definitions also require that the firm has existed for at least one family generation or has the intention of future generations of the family continuing to operate the firm, thus making it a family firm. According to such a definition firms founded by entrepreneurs, such as Facebook, are not considered family firms. Finally, some definitions also incorporate soft factors, taking certain cultural elements into account.

Due to the lack of a uniform definition, it is simply not possible to state how many firms can be defined as family firms with any level of certainty. However, the available information suggests that an estimated 70 to 90 percent of businesses worldwide are family firms, which contribute to approximately 40 to 70 percent of gross domestic product (GDP) and employment worldwide.

Life cycles of family firms

What better helps research and practice to make the essence of family businesses tangible is the classification of family businesses according to their life cycle. A distinction is generally made between first-generation founder-managed companies (controlling owner), second-generation sibling-managed companies (sibling partnership) and family firms that are in their third or subsequent generations and already have several family lines (cousin consortium). Families may then further develop on this phase to evolve into a family enterprise. In this phase, the family generally invests its assets in a highly diversified manner and, in addition to the original company, also owns other significant assets and company shares.

This distinction provides a clear and helpful illustration of the challenges the majority of family firms typically encounter during each phase of the firm. Each phase is marked by the different situations both the firm and family find themselves in, with the implementation of measures required to ensure the smooth operation of both systems.

Founder-managed family firms, for example, typically feature a management style that revolves around the founder, with succession planning often posing a major emotional and strategic challenge.

On the other hand, sibling-managed firms need to develop an aligned management style and a common strategy for the company.

As a rule, once a firm reaches the cousin-consortium phase, both the family and firm are more complex, and rules need to be established to guide family decision-making and participation.

Once a firm enters the family enterprise phase, the priority lies with ensuring the family retains a strong identity with the firm or, to counter a loss of identity, the family creates a new identity through philanthropic or investment activities.

DEVELOPMENT PHASES OF A FAMILY FIRM

F1

Evolutionary Transitions Between Types of Family Business

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Gersick, Lansberg, Desjardins, Dunn (1999)

Listed firms

Distribution

According to figures from the World Bank, the number of listed firms continued to increase between 1975 and 2014. In 2014, there were a total of 45 347 listed firms. Since then this figure has been relatively constant but in steady decline. Recent surveys from 2018 state that there are 43 342 listed firms worldwide. Switzerland currently has 236 listed firms, with a peak of 289 listed firms reached in 2003.

A 2018 ranking by “TheGlobalEconomy.com” featuring 70 countries showed that the highest number of listed firms can be found in the following countries:

1.India (5 065)

2.USA (4 397)

3.Japan (3 562)

4.China (3 584)

5.Canada (3 330)

Germany is currently in 17 th place with 465 listed firms and Switzerland is in 27th place with 236 listed firms. Costa Rica, Lebanon and Namibia rank lowest with only 10 listed firms.

According to an OECD report from 2019, these listed firms have achieved impressive market capitalisation, which currently stands at over 80 trillion USD. Although the majority of listed firms (57 percent) are located in Asia, they currently jointly hold less than half of market capitalisation (37 percent). Individually, the USA takes the top spot – it is the location of 10 percent of all listed firms with market capitalisation amounting to 36 percent of global market capitalisation.

How many of these businesses are family firms? Following our previous explanation on the lack of a clear definition for a family firm, determining precisely how many of these listed firms can be considered family firms is not a simple task. Be that as it may, various studies do shed light on this topic and permit a deeper insight.

According to the aforementioned OECD report “individuals and families” currently hold 7 percent of the market capitalisation of listed firms around the globe, with “private firms and holding firms” holding 11 percent. 14 percent of the market capitalisation of these firms is held by the “public sector” and 41 percent by “institutional investors”.2

OWNERSHIP IN LISTED FIRMS (OECD)

T2

Investors

Share of market capitalisation

Institutional investors

41 %

(Pension funds, insurance companies, investment funds, etc.)

 

Public sector

14 %

Private firms / holding companies

11 %

Individuals and families

7 %

(highest percentage in Asia and Latin-America)

 

Free float (not required to register)

27 %

As a percentage, in terms of number, we are able to surmise that approximately 30 percent of listed firms in Switzerland are family firms. This number can be backed up by numerous studies.