Governance and succession in family firms:

The three central constellations

Introduction

In the following we present three family firms. Each one represents a prototypical type of family firm, namely the owner-managed family firm, the sibling partnership / cousin consortium family firm, and the family enterprise. In reading through the three case vignettes please ask yourself for each one of the firms the following questions:

• What are the advantages and the challenges of the chosen structure?
• What kind of governance solutions/precautions do you suggest to tackle the challenges?
• What challenges do you foresee with regard to succession?

1           Artemis – the owner-managed family firm

The history of Artemis Group dates back to 1911 when Hermann Franke founded a sheet metal business in Rorschach (Switzerland). Until the 1930s, he added a sanitary installation department and started producing oven tops, skylights, windows, and sink units. The headquarters were moved to Aarburg, Switzerland. After WWII, the founder’s son, Walter Franke significantly expanded the firm, mainly driven by the production of complete kitchens. Expansion continued, with Franke building and installing the first kitchen for McDonald’s in Munich in 1972. In 1975, Walter Franke’s friend and business partner Willi Pieper took over, and his son Michael Pieper joined the group in 1989. Through the generations, ownership was always kept in the hands of a single next generation family member who served as the owner manager. In the following years, rapid expansion transformed Franke into a corporate group with worldwide operations.

Today, Franke Group is part of Artemis Group, which represents Michael Pieper’s investment company. Next to Franke Group, Artemis also owns Artemis Real Estate Group, Artemis Asset Management Group and Feintool Group. Altogether, Artemis Group employs around 11,000 people worldwide and generated consolidated sales of CHF 2.7 billion in 2014. Around 9’000 employees are working for Franke Group.

Franke Group (ownership stake of Artemis 100%) includes three main business units, namely Franke Kitchen Systems (world-leading provider of kitchen systems), Franke Foodservice Systems (kitchen systems and services for quick service restaurants), and Franke Coffee Systems (professional and semi-professional coffee machines).

Artemis Real Estate Group (100%) develops, owns and manages an extensive real estate portfolio in Switzerland and abroad. Artemis Asset Management Group (100%), in turn, holds various strategic stakes in listed and non-listed companies such as AFG Arbonia-Forster-Holding AG (>26%), Autoneum Holding AG (>21%), and Rieter Holding AG (11.5%). Finally, Feintool Group (>50% ownership) is a world market leader in fineblanking technology.

Michael Pieper (68) is sole owner, president and CEO of Artemis Group. From 1989 to 2012 he was also CEO and president of Franke Group. A family external person, Thomas Erb, is chairman of the board of Artemis. Michael Pieper’s daughter, Nina (33), is also a board member of Artemis but is otherwise not involved in the firms. Michael Pieper’s son (31) works in Franke Group and is heading the firm’s Arab operations.

Michael Pieper also acts a board member of Franke Group, Artemis Real Estate Group, and of several companies where Artemis Asset Management Group holds strategic participations (e.g., AFG Arbonia-Forster Holding AG, Rieter Holding AG, and others). The group structure is illustrated below.

2           Frutiger – the sibling partnership / cousin consortium family firm

The foundation of Frutiger Group was laid when Johann Frutiger, a master builder, established his own firm in 1869. In those times, the building and construction industry was mainly focusing on infrastructure and tourism-related projects. Quickly, Johann Frutiger had established a successful firm that realized construction projects nationwide.

After his death, his sons Hans and Fritz joined the company in 1913. The firm was soon active both in building construction and underground construction, realizing many trend-setting buildings before and after WWII.

In 1954, the third generation joined, and the firm experienced significant growth. In the 1970s, the firm started activities as prime constructor. Also first internationalization activities fell into that period. In the 1980s and 1990s, Frutiger also expanded strongly into the French-speaking part of Switzerland, making it one of the market leaders in Switzerland.

In 2001, cousins Luc and Thomas Frutiger joined. They are fourth generation family members and the sole owners of Frutiger group. After 2003, a new wave of growth was achieved through numerous acquisitions. In 2014, the Frutiger Group with its headquarter in Thun (Switzerland) is a large construction and civil engineering company with more than 2’500 employees and 25 firms. Total revenues were more than CHF 800 Million.

In the Frutiger Group, the two cousins occupy several important positions. They are both members of the board and delegates of the board, that is to say Co-CEOs. In addition, Luc Frutiger is the head of the “Specialties” division, see below Figure for details.

3           Haniel – the family enterprise

Franz Haniel & Cie. GmbH is one of Europe’s largest privately owned businesses. In 1756, Jan Willem Noot founded a colonial goods store in Duisburg (Germany). In the 19^th century, third-generation member Franz Haniel renamed the company and together with his brother Gerhard, they expanded the firm significantly into various business areas such as shipping, mining, and trade. Expansion and diversification continued in the early 20^th century, with Haniel being active in mining, coal trading, shipping and forwarding. After WWII, activities in shipping and trading were restored; however, divestments of Haniel’s heavy industry and gasoline holdings were implemented in the 1960s. In the following years, the family invested in new business areas such as pharmaceutical wholesale (Celesio, which was sold in 2014), recycling of industrial waste, and a wholesale and retail chain (Metro AG).

As of 2015, the Franz Haniel & Cie. GmbH functions as a strategic management holding company and is still headquartered in Duisburg (Germany). There are four main divisions:

1. CWS-boco (owned at 100%) offers end-to-end solutions in the fields of washroom hygiene, dust control mats, workwear and textile solutions. The division is one of the international leaders in this field with activities in 18 European countries as well as China.
2. ELG (owned at 100%) is the global leader in the trading and recycling of commodities, in particular for the stainless steel industry. With more than 40 locations in North America, Europe, Asia, Australia and South Africa, the division has one of the industry’s largest global networks. The product line essentially comprises stainless steel scrap and superalloys.
3. TAKKT (owned at 50.25%) is a B2B direct marketing specialist for business equipment primarily in Europe and North America. The product range comprises, among others, operating and warehouse equipment, office furniture and accessories, and transport packaging.
4. Metro Group: Haniel holds a 30.01% share in Metro Group, which is one of the largest international retail groups.

Altogether, the four divisions constitute an industry conglomerate that generated EUR 3,944 bn in revenue in 2014, with an operating profit of EUR 217 million. In 2013, the Haniel Group had more than 50’200 employees; this number dropped to around 11’500 in 2014 due to the sale of the Celesio group to McKesson for around EUR 2 billion.

As a private firm, Haniel is wholly owned by the founding family, with more than 600 family shareholders. The family is considered as one of the wealthiest families in Germany.

A main distinguishing characteristic is the strict separation of management and ownership. Since the start of the 20^th century, family-external managers have been in charge, with no family member working in the Haniel Group.

The roughly 680 family shareholders are organised in the Shareholders’ Meeting. It meets once a year and elects six shareholder representatives to serve five years on the Supervisory Board. Currently, four are family members, two are nonfamily members. The shareholder representatives and six employee representatives on the Supervisory Board help to shape the fundamental business policies of the Company and influence the corporate strategy.

The Supervisory Board has equal representation as a co-determined monitoring body; it is always chaired by a member of the family, today Franz Haniel (pictured left).

Shareholder and employee representatives jointly appoint and dismiss members of the Management Board, monitor their work and support them in an advisory capacity. Four members of the Supervisory Board form the Audit Committee, which also has equal representation.

The Shareholders’ Meeting elects from its midst 30 members for the Advisory Board, which facilitates communication between the executive bodies of the Company (Supervisory Board and Management Board) and the members of the family. The governance structure is illustrated in the below figure.