The Trusted Advisor

THE TRUSTED ADVISOR are our firm’s regularly published articles, featuring not only insights derived from our project work but also guest posts and interviews with leading business figures. They offer food-for-thought and practical advice on a variety of key topics in the leadership, ownership advisory, governance and strategy domains.

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New Executives need to be integrated

Why onboarding of new executives is not just “nice to have”
by Dr. Christian Bühring-Uhle and Philipp Fleischmann

Hermann Hesse once said that every new beginning holds its own magic. But there are also risks. The appointment of any leader to a new role is a decisive moment in both an executive’s life and the life of an organization. Yet while often there is great energy and attention given to the selection of that leader in a comprehensive search process, there is another part of the equation that is, in our view, at least equally important: making sure that the leader is actually prepared to succeed in that role.

In cases where a CEO hiring does not work out, it is predominantly not because of a mistaken recruitment but more often because of issues that arise in the first six months of tenure: e.g. inadequate preparation; cultural misunderstandings; lack of contextual awareness; misjudgement of internal ´politics´; lack of ExCom knowledge. The first three to six months therefore are critical for the success (or failure) in a new role — no matter how experienced and how well prepared the new leader might be. An organization must therefore devote serious attention to the transition of that new leader, regardless of whether he or she is an internal or external hire. It is, however, all the more critical when the new leader is the first external (Chief) Executive in a Family Owned Enterprise, and still more, when it is the first time that this executive is working for a Family Owned Enterprise.

In our firm we have made it an integral part of any Executive Search process to support our clients – and the newly appointed hire – during the critical onboarding & integration process. We believe that a well planned and executed integration plan, which also focuses on the cultural integration, can significantly reduce the time it takes new leaders to reach their full effectiveness – and, almost more importantly, reduce the risk of failure (“hired on competency, fired on chemistry”).

Active integration support begins in the moment when the start of a new leader is being prepared. The focus at this initial discussion is on threats & opportunities in the new organization and/or function – and the risks involved. This is an important discussion in any transition, but in particular in Family Businesses with a variety of additional, ‘unwritten rules’. This can be a “tricky” moment, and companies can greatly benefit from professional support when announcing a new leader and preparing the incumbent for the new role.

The integration support should start long before the new executive sets foot into the new organization and thus prior to the first day on the job. The new leader will need to understand, what the current company culture is about; who are the most important stakeholders (which may include members of the family owning the business who do not possess a formal role in the organization); what is their role and influence in the organization; and how they tend to operate; the expectations (and underlying concerns) placed on the executive by the owners, the board, and the line managers.

The implications of those expectations must be considered, and a strategy developed as to how the new leader should best communicate what he or she intends to do. How is the new leader’s agenda going to be designed, who will need to be aligned, what are the potential pitfalls of the job and tactics to anticipate and prevent them? A clear communication plan, e.g., for an incoming CEO can be key to establish the agenda and align important stakeholders inside and outside the organization right from the beginning.

It should be clear, prior to the start in the new role, whom the new leader “must meet” in the early days and what steps are needed to get a grip on the organization as quickly as possible. This might include measures designed at getting a clear, transparent view on the new team – e.g., the direct reports, and their aspirations, hopes & fears. Personalized coaching can help the executive to develop trust in his or her team and to shape first impressions. Active integration support during the first three months can include coaching, 360-degree evaluations, and targeted feedback, all focused on helping the leader to make a strong initial traction in the organization. A feedback loop needs to be established ensuring that the new executive can course-correct quickly if needed.

Many organizations assume they can organize successful onboarding themselves – or can even do without a systematic onboarding process. We have seen cases where it was assumed that top executives or outstanding talents ‘will know how to swim’, and indeed it can be understood that when a highly experienced, highly skilled – and highly paid – executive takes on his or her new responsibility, that this person will know what it takes to turn this beginning into a success and will have done a thorough “due diligence” (including meetings with stakeholders and “reference checks”) before taking on the new responsibility. But it is a very critical moment and one that even experienced executives will not have lived through that many times. And it would be an error to assume that success in this situation only hinges on the executive in question. It is a task for the entire organization, and that means in particular, the responsibility of the owners and their representatives, in many instances the board, and especially its Chairman.

In our experience, an extra effort to ensure that a senior appointment makes the best possible initial impact is a wise investment. The cost of failure in onboarding and integration can be very high – and companies will need to understand that a successful hiring isn’t guaranteed by a professional search process alone.

In the fall of 2019, AvS – International Trusted Advisors has teamed up with PwC and INSEAD to organize the first large-scale pan-european survey among large Family Businesses dealing with the success factors for external executives in Family Businesses, and one of the key issues explored is how to ensure successful integration of new executives. We hope to be presenting the results in the first half of 2020.

CEO succession: maximising success

Onboarding is an absolute must to ensure a smooth transition
by Carolyn Lutz and Philipp Fleischmann

Let’s imagine you are a shareholder of a large and successful diversified family business, operating globally with several fully owned companies, joint ventures, and participations and other businesses. The time had come for a CEO succession, there was nobody from within the family that was qualified to take over. You hired an executive search firm, you found your candidate, everyone agreed he is the one, you negotiated, he was hired. The search firm strongly suggested that an onboarding and integration program would be very helpful to help this new CEO navigate the family and firm culture and all the hidden traps he could fall into as he attempts to make his mark and get some early wins. You refused, thinking you and your team would succeed in doing the onboarding and integration on your own. Now, 18 months later, the new CEO is out, and you are back at square one. What went wrong, and how can this be avoided in future?

First, some data from different sources around the world of onboarding and integration:

  • Organizations with a standard onboarding and integration program experience 54% greater new hire productivity, and 50% greater retention over the first three years.
  • Manager satisfaction increases by 20% when their employees have formal onboarding training.
  • 32% of global executives say the onboarding they received was very poor.
  • 73% of respondents in a recent study said their onboarding programs accelerate new employees’ performance, and improve employee retention and loyalty.
  • 50% of all senior outside hires fail within 18 months in a new position.
  • Almost 60% of newly hired C-suite executives said it took them six months – and close to 20% said it took them more than nine months – to have full impact in their new roles. Less than one-third received any meaningful support during their transitions, a shame since 80% of this fortunate minority thought such support made a major difference in their early impact.

Most firms do well with the administrative formalities of onboarding: making sure the IT needs are organized, business cards are printed, paperwork is filled out, and compliance is organized. However, what is often missing is a clear and benevolent immersion into the unwritten rules of the company, which can lead to the biggest faux pas in terms of derailing an otherwise well-suited candidate. After all, privately held organizations tend to keep their employees a long time; their culture evolves differently and more slowly than a publicly traded firm which will have more heterogenous talent and probably more ‘fresh blood’ from outside the organization. Family-controlled company culture can be overly influenced by outsize personalities; official reporting lines may belie the actual power and influence of certain individuals. Candidates who are ‘best in class’ but who have come out of a publicly traded organization, or even a different family-controlled business with a different culture, can quickly fall foul of ‘the way things are done here’ if they are not guided even before their first day on the job.

Tips for the organization

  • Begin the ‘onboarding’ already during the interview phase – be open about the strengths and weaknesses of the company and the culture, stakeholder maps, and how decisions are made.
  • Dedicating time to discussing team and organizational dynamics during interviewing and onboarding stages can help the new executive avoid invisible cultural barriers.
  • Assessing how an executive’s strengths and weaknesses align with objectives for the role can help provide a customized roadmap for onboarding. Consider using an impartial executive coach who can give the executive an objective sounding board, and/or give the hiring manager course correction if necessary.
  • Ensure operational overviews and clear performance expectations, which derive from strategic priorities, are communicated with the executive. Avoid surprises.
  • If a problem area is identified, address it quickly – the earlier an issue is exposed, the easier it can be resolved.
  • Do not forget to help with family orientation and integration if the move required a relocation – and career counseling for the executives’ spouse in the case of dual-career couples. An unhappy spouse is the leading cause of failed expat assignments. Remember: ‘happy wife, happy life’.

Tips for the hired candidate

  • Be proactive in communicating and alert for cues on culture. In some cases, it is a fine line to work within the culture while seeking to change it.
  • Signal that building relationships is a priority for you.
  • Don’t focus only on your superiors. Building the relationships with your team and knowing how to work the matrix will have a huge influence on your success.
  • Consider crafting an ‘elevator speech’ with your reason for joining and what you hope to contribute to the company.
  • Do use HR – there is a reason it is called ‘Human Resources’ – they can help you not only with team capability and gaps, but also with a ‘reality check’, giving you feedback from the organization on your performance and style is perceived.
  • Be mindful of different stakeholders and communicate clearly, openly, and frequently; in particular if you were brought in as a change agent.

Know yourself – your style, preferences, values and motivations – and how these fit with the organization and team culture.

Stumbling blocks for external executives

Interview with Martina Sandrock – advisor, NED and top executive
by Andreas von Specht

Martina Sandrock is the Founder and CEO of connect & innovate, which advises on strategic corporate change processes. As a CEO, she worked for many years within international companies in the food industry before taking over the chairmanship of a medium-sized family business in 2017. She holds an MBA (USA), and has completed leadership trainings at Harvard Business School and the Center for Creative Leadership/Colorado Springs. In 2006, she was voted “Manager of the Year” and in 2010 was ranked as one of the “Top 10 Business Women” by the Financial Times Germany. Martina Sandrock has been an Advisory Board Member in B2C and B2B family businesses for many years.

AvS – International Trusted Advisors: Ms. Sandrock, you have experienced for yourself how challenging the transition of an external executive from a large company into a family business can be. Many successions even go wrong. Why?

Martina Sandrock: The reasons for this are of course different depending on the situation but in my experience when failures happen they cannot be attributed to one side alone. The most important rule for many entrepreneurs in this situation is that “it requires sufficient time for the individual steps of a succession to be thoroughly prepared and implemented in a structured manner”. “Hold back, listen first, don’t try to do everything differently” is the good advice that incoming executives should heed. Well-intentioned plans are made and projects are formulated, but often they do not prove themselves in reality. Usually, both sides contribute equally to the failure – the entrepreneur as well as their selected successor.

What should family entrepreneurs be aware of when they take the risk of hiring an external executive?

Entrepreneurs and shareholders often overestimate the future viability of their own companies – and are then surprised when a successor from the outside analyses matters with a fresh eye and sees the need for change. Usually, an entrepreneur decides to settle his/her own succession only when, in their opinion, their company seems sufficiently well positioned to make a handover. However, with the rapidly accelerating and ever more complex economic and social changes, a rosy self-assessment does not mean that the company is necessarily well equipped for the future, and that the successor simply has to “continue like before”. Some entrepreneurs underestimate the value of the “external view”, and also the proven experience and working methods of the chosen successor – the reasons for which an external manager was actually chosen.

So above all, the entrepreneur must be able to let go in favour of his/her successor?

Yes – and of course not only the entrepreneur has to be prepared to change. Another phenomenon concerns the importance of teamwork in top management: Frequently, the entrepreneur leaves behind “lone fighters” – individuals who have “served the boss” and who never really had to prove themselves as an executive team working constructively together. In addition, they have probably enjoyed extensive and direct contact with the owner, serving him/her with pride and great loyalty; they sometimes regard the requirement to cooperate with a new, external executive as a demotion. Incidentally, a new boss in the company is not only a great challenge for the entrepreneur, his successor and the management team, but also a decisive turning point for ALL employees. After all, they lose their most important reference person in the company – and with it they lose a sense of security, trust and routine. It is likely that they will be required to become used to new, unfamiliar ways of working. Without the entrepreneur in-situ, the management team will be more likely to take important decisions in the ExCom – and make greater demands in terms of numbers, data, facts, ‘own initiatives’ and accountability. More transparency, openness and togetherness will be required.

What do successors – and external executives in general – have to consider when integrating into a family business?

Successors sometimes overestimate their ability to decipher the particular ‘code’ of family shareholders, and tend to overestimate their own experiences and competencies. At the very beginning, external managers tend to underestimate the importance of a “professional coronation” by the entrepreneur. In many companies, all the responsibility was concentrated in the hands of the owner. All official communications, and relationships with key customers, business partners and employees revolved around a single person who will no longer be present. Why their successor was chosen, which experiences and competences he/she brings along, what mission they should accomplish – all these things often remain unspoken.

With what consequences?

In terms of internal and external communication, a personal presentation of the successor to the organisation is often not made. For example, an official public statement by the entrepreneur that he/she has chosen their successor thoroughly and according to professional criteria, and that he/she has now been fully entrusted with wide-ranging responsibility for the business, is missing. In my opinion, this formal act of coronation should have at least the same importance in the handover communication as saying farewell to the entrepreneur. And successors should pay close attention to this.

Once the first weeks and months in the company are successfully navigated, many successors are inclined to focus more and more on the day-to-day issues: How do we set up projects; how do we implement them quickly; where can quick wins be achieved? Building and maintaining a good relationship to the owning family may be neglected in favour of the routine application of the experience and skills the executive has brought along. However, especially after the first 6 months – the “honeymoon phase” – this relationship is often put to a tough test.

Integration and onboarding can take more than 6 months?

Especially in the first few months, external managers sometimes overstep the mark or commit faux pas because they don’t understand the unwritten rules in the company. The danger of misunderstandings and “stepping on toes” is high. Even after the first few months one should continue to be very careful in dealing with the different stakeholders. For example, external managers should use the regular exchange with the owning family to learn more – to understand what drives the entrepreneurs, what positive and negative experiences have shaped their predecessor, and what he/she is particularly proud of and values. External managers need to be conscious that in parallel with their attempt to master the challenges of leading the company, a painful separation process of the organisation from the entrepreneur may still be going on. In this case, and even if the new executive has self-confidence in their abilities and capacity to run the company, some show of humility before the task and loyalty to the entrepreneur must also be made visible.

What about making necessary changes to the company?

This is an important issue because the company situation often requires rapid and urgent changes. The pace and type of change is a fundamental issue and has many facets. First: the buy-in for change. At the beginning, external managers tend to underestimate the importance of a formal agreement on the change process they recommend. After the first 100 days in the company, the successor should present to the entrepreneur or the advisory board a written report on the perceived status of the business and on the planned change measures – and then demand a formal ‘go’. Secondly: many people do not want change and would rather keep the proven and tested, the familiar. The momentum, the energy which is generated by the handover of leadership, must be used. Change must be initiated promptly. The more the team feels that everything will remain the same, the more difficult it will be to get something new off the ground. Thirdly: and this is always particularly important to me personally – change planning and implementation must not take place in secret! The entire team must be taken along, integrated, motivated and held accountable. This may require an enormous personal change for each individual, which must be closely supported by the new boss and his management team. Only in this way can such an important process succeed.

Is there any other advice just for successors of family businesses?

I’m sure there are many more pieces of advice. But one very important point in my opinion is not to underestimate the importance of the HR and communications department in the company. While many, more traditional entrepreneurs still regard these departments merely as ‘administrative support’, they can become vital for the new executive. If their start in the company is accompanied by a required restructuring or a change in the corporate and management culture, the personnel and communications departments must be given direct access to the ExCom. These managers are the organisers and coordinators of the change programme, so access to the top leadership is an absolute necessity for them!

Ms. Sandrock, we thank you for these insights!

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

Appointment of outstanding “Industry Advisors”

In the autumn we invited a select, international circle of outstanding entrepreneurs to enhance AvS – International Trusted Advisors from 2019 as advisors and brand ambassadors, and to support our Partners as a ´sounding board´. Accordingly, we are delighted that Luisa Delgado, Tony Bogod, Wolfgang Colberg and Hans-Kristian Hoejsgaard have accepted our call and will accompany us as “Industry Advisors” during the further internationalisation of our business. All four are top executives who look back on impressive management careers and are currently active on the supervisory boards of international companies and organisations.

Luisa Delgado, a Swiss national, has been Chief Human Resources Officer at SAP and CEO of Safilo Group, a global eyewear manufacturer. She is a Member of the Supervisory Board of IKEA.

A British national, Tony Bogod headed the Centre of Family Business of the consulting firm BDO for many years and is now a globally recognised expert on succession issues in family businesses and family offices.

Wolfgang Colberg, a German, held executive positions within the Bosch Group for many years before leading the IPO of Evonik Industries in his capacity as CFO. Today, he is an Industrial Partner at private equity firm CVC Capital Partners (Germany) and a Member of the Supervisory Board of ThyssenKrupp.

A Danish national, Hans-Kristian Hoejsgaard was Group CEO of Oettinger-Davidoff and is now a Member of the Supervisory Board of the Calida Group.

Sylvie Mutschler-von Specht, a Member of the Board of Directors of our holding company in Switzerland, will form our Board together with the external “Industry Advisors”. Sylvie Mutschler-von Specht has over 30 years of experience as an entrepreneur, consultant and active investor in various industries, including real estate development and a number of start-ups. She is currently CEO of Mutschler Outlet Holding and a Member of the Board of Directors of the Swiss private bank Bergos Berenberg. At the same time, she is involved in various non-profit initiatives.

The corresponding press release can be found here.

Detailed information about our Industry Advisors can be found here.

Global study with PwC and INSEAD

In cooperation with PwC and INSEAD (Wendel International Centre for Family Enterprise), we have launched a global study combining qualitative and quantitative research on the “Success Criteria for External Managers in Family Businesses”. Topics will include the selection and recruitment of top executive positions in family-owned companies and, above all, the critically important role of active onboarding during the first months of tenure.

The number of family members of the “next generation” who are willing and able to enter their family company in an operational capacity is at a record low, so that an increasing number of successions can no longer take place within the family. In addition, we see a steady trend towards the separation of management and ownership, especially in third-generation family businesses and beyond.

Many family businesses believe that they can organise the onboarding process themselves – but in reality, this is often not the case. We analyse the integration challenges, the reasons for the frequent failures, the success factors for a successful integration, and provide best practice examples for onboarding external executives into family businesses.

We are currently interviewing CEOs and owners of 60 of the largest and most important family businesses in eight countries, including a member of the Peugeot family, the CEOs of Heineken, Randstad and Lindt & Sprüngli, the Executive Chairman of Lego, or the CEO and shareholder of Pernod Ricard. The results will be published in several languages next year and presented and discussed in several countries.

Joint event with Simmons & Simmons

In cooperation with the international law firm Simmons & Simmons, which is active through more than 1,500 employees and 22 offices in the important economic and financial centres in Europe, the Middle East and Asia, we designed an event entitled “Increasing Enterprise Value Through Professional Supervisory Bodies” and held it in Frankfurt and Munich. Under the direction of Dr. Christian Bornhorst (Simmons & Simmons) and Dr. Christian Bühring-Uhle, as well as the participation of Felix Waldeier and Philipp Fleischmann, we conducted discussions among the participants, offered insights, presented helpful “dos and don’ts”, and encouraged best practice sharing.


Agile: When the Squad is in charge

Core concepts and practical examples of agile management
by Dr. Christian Bühring-Uhle

Agile management has developed into a buzzword in recent years, but there is no generally accepted understanding of what “agile” actually means. The term originates from software development, where it is often associated with “Scrum”, a term originally used in rugby, referring to gradual progress achieved in small steps, frequently interspersed with minor setbacks. In software development, the “agile” approach consists of breaking down a complex development task into a multitude of individual tasks and entrusting these tasks to small teams working in parallel, with relative autonomy, resolving their task “from A to Z”. These teams are often called “squads” and are led by a “product owner”. Instead of attempting a complete and comprehensive resolution through a classical, hierarchical structure with close coordination and top-down monitoring, the teams are given the freedom to proceed in “sprints”, i.e. to experiment with partial solutions in quick succession, to learn from experience. The aim is also to obtain a maximum degree of feedback and to systematically focus on the end users.

“Chapters” operate across squads, like in a matrix: colleagues from similar functional backgrounds exchange information, for example, on new technical trends. The ability to act autonomously stimulates action orientation and creativity – resulting in faster and more pragmatic decisions. Interdependencies between the subprojects are clarified in frequent, short coordination rounds between the teams. Processes become faster and comfort zones are eliminated (a change that may not be savoured by all employees alike). When a subtask is completed, the team is disbanded, and the members move on to new teams specifically composed for the next subtask.

At first glance, this iterative approach, which deliberately dispenses with a thoroughly planned approach and leaves room for learning from mistakes and regressions, may seem inefficient. In certain scenarios, however, it has proven to be very effective and efficient due to its greater flexibility, since wrong turns are recognised as such more quickly and with less waste of resources. Another advantage is the interdisciplinary work, because developers, designers and programmers work together directly in a team and approach the problem to be solved from different points of view. The increased autonomy of the teams enables self-organisation and orientation towards factual rather than hierarchical aspects. Everyone learns from each other and from the task.

Even far away from the agile practices in software development, companies of all sizes, histories and industries are now trying to jump on the bandwagon and make their companies “agile”. This does not always succeed, because with the advantages also come challenges. In addition to responsibilities and organisational models, this applies above all to the topic of leadership. But how exactly must leadership change – or not – if a company is to function as an “agile” organization?

Agility first and foremost requires (self) discipline, motivation and cohesion. In many agile companies, ideas are developed jointly, continuously and spontaneously – and eternal meetings and “PowerPoint battles” are dispensed with. This can work well, but only with a very high degree of discipline. This may at first seem surprising: the additional freedom and flexibility is “acquired” through (because it is conditional on) additional discipline. Otherwise you face the threat of chaos. Accordingly, the role of the manager must also change: In future, managers should work less via control and delegation – and rather take on a “transformational leadership role” (or, in the words of Pascal Houdayer: to see oneself as a “social architect” – read the following interview). This philosophy of “servant leadership”, founded by Robert Greenleaf, is characterised by a kind of mentoring function: The manager as a role model who coaches employees, transfers responsibility, promotes independence as well as personal development and, last but not least, inspires a sense of purpose.

In the context of agile transformations, distinctions have to be made according to the history and developmental stages of a company. The Swedish music streaming service Spotify, for example, is an “agile native”, i.e. Spotify has been organised in an agile manner since its inception. The company is a popular success story and has grown to have 4,000 employees, 217 million users (100 million of which pay for a subscription in the framework of Spotify’s freemium business model), EUR 5.5 billion turnover and EUR 22 billion market capitalisation. Organised from the outset into squads and tribes, and orchestrated by a young but very disciplined top management, Spotify has mastered the transition from a hip start-up to a large listed company without sacrificing agility and efficiency.

Freitag, a medium-sized manufacturer of carrier bags made from recycled truck tarpaulins, is an example of a company that first grew as a classical hierarchical organisation and later initiated an agile transformation. The Zurich-based company, founded by the designers Markus and Daniel Freitag in 1993 and still owned by the two brothers, had developed from a start-up into a classically organised, “stratified” company with over 200 employees at its headquarters and various production sites abroad. With rapid growth came a leadership crisis; the CEO was changed several times. The brothers no longer felt “at home” and decided on a radical change. With the help of external consultants, a “holocracy” was established and documented in a “constitution”. They abolished the position of CEO and then the entire top management level. The founders/owners no longer have an office on the top floor – the executive suite was abolished – but they are located “in the middle of things” again. Traditional hierarchical levels and departmental structures were replaced by “circles” that organise themselves without a “boss”. Instead of a marketing department there is, for example, a “Commercial” circle. These are not specified from above but are decided jointly in the circle (in the biweekly “Governance Meeting”) and adapted if necessary. If a topic concerns only part of the circle, a sub-circle is formed, e.g. for “viral marketing”. The sub-circle acts autonomously, i.e. the upper circle can formulate suggestions to the sub-circle but cannot give instructions. The day-to-day business is discussed in the weekly “Tactical Meeting” in a strictly defined process facilitated and overseen by a moderator. (Only) those who have put an item on the agenda or are affected by their role participate. During a check-in round, everyone briefly reports on where their project stands, and the degree of completion is documented in a checklist by the moderator who also helps to clarify questions and any differences. Questions may be asked, but lengthy discussions are not allowed in the Tactical Meeting. Any course corrections or modifications in the individual projects are decided autonomously by the member of the circle entrusted with the respective role. Action orientation and flexibility take precedence over consensus and perfection. The occurrence of mistakes is accepted, and they are corrected autonomously. The tactical meeting lasts about an hour, and the results are documented immediately and made available online to all those affected. Transparency is of critical importance. All employees have access to practically all figures in the company. Apparently, this works – the autonomous style of working is reported to produce an increased degree of accuracy and accountability. It has to be noted, however, that this did not come about overnight, as a result of a resolution by the owners, but it had to be implemented in a gradual process involving all employees in the company, and it has not reached all areas yet. Especially in production, which is highly susceptible to errors, the company is still in a transitional stage.

Perhaps Spotify, which has been agile from the very beginning, and Freitag, a comparatively young and small company that has always had a rather unconventional culture, are not entirely representative of all other companies, especially larger ones. So, how do you introduce an agile system into a “traditional large company”? A frequently cited example of the transformation of such a company is the international insurance group ING. Here, agile management methods were introduced across the board in order to adapt the company to digitisation with its changing (and increasing!) consumer requirements and the associated ever-increasing intensity of competition. In a large-scale “complete transformation”, the teams were reduced in size and the organisation was made more flexible. Each employee had to officially re-apply for a job in the new organisation. Around 30% of managers had problems finding their way into the new structure – and left the company. As part of the transformation, the company was divided into squads. Managers were no longer responsible for specific organisational units and the achievement of pre-assigned goals but had to motivate squads within the framework of the new agile management model, and help them to consistently focus on satisfying customer needs and to derive the overarching goals and priorities from these needs.

The pharmaceutical company Novartis with its 100,000 employees has also committed to agile ways in order to promote personal responsibility and innovation, and thus increase adaptability and performance. Vas Narasimhan, the new Group Chairman, propagated the “Unboss” concept when he took office in February 2018. The idea was not to abolish all bosses but to initiate a rethink and to transform the behaviour of Board members, general managers (360 people!) and the 15,000 middle managers. They all undergo an “Unbossed Leadership Experience” with training, 360° feedback and personal coaching. 60,000 employees have assessed their bosses, and the willingness to change vs. resistance are monitored using specially developed indicators.

The path to agility can be rocky and is not always successful. The example of Zappos, an online shoe retailer from the USA, is a good illustration, as they were struggling in the context of the agile transformation. In 2013, all executive positions were abolished with the aim that employees should focus radically on the end customer in a stringent “bottom-up” model and organise themselves completely autonomously. At first, this led to chaos, as no one really felt responsible, processes came to a standstill and employee satisfaction dropped precipitously. The profound change towards an agile organisation had been introduced too abruptly, and the resulting shock to established processes and structures was underestimated. In the end, Zappos was able to recover and is now regarded as a pioneer and model for a culture of consumer “obsession”. Zappos even founded a consulting branch and now accompanies other consumer goods companies on their path to “holocracy”.

Agile working does not suit every company or every corporate function, but in times of constantly accelerating change, no company can avoid dealing with it. In our second article, Felix Waldeier explains where agile working makes sense and what you should bear in mind during the introduction. We learn a very personal perspective on agile management techniques in the subsequent interview with Pascal Houdayer, who has promoted innovative leadership practices in a variety of companies.

It’s all in the blend

Why “Agile” isn’t always good and “Hierarchy“ isn’t always bad
by Felix B. Waldeier

“Agile” or an agile transformation can lead to great success but also to failure and chaos, as various practical examples in the previous article (“Agile: When the Squad is in charge”) by Christian Bühring-Uhle show. It will therefore come as little surprise that “Agile” is not a panacea. At the same time, we are convinced that no one can afford to ignore the new ideas and approaches. Why it that so?

We believe there is no way around agile management methods for certain tasks. It all depends on the significance and adequate handling of mistakes. There are tasks where creativity and innovation are key, especially in discovering new solutions. Here, mistakes are an important source of knowledge and one simply cannot make progress if one does not try anything new, risks mistakes and learns systematically from faults and setbacks. In these situations, the iterative “trial and error” approach of agile techniques is not only helpful, but indispensable.

However, there are also contexts where the primary goal must be to avoid errors, e.g. flight control systems, nuclear reactor safety, technical surveillance authorities. And in every organisation, there are functional areas where errors are harmful, period. In functions such as accounting, occupational safety, product safety or compliance, management must strive to eliminate or at least minimise errors. This distinction is relevant even for IT because innovative software development has to follow other laws than the operation of an IT infrastructure where service levels are measured and have to be complied with. The latter type of task, which is about avoiding / minimising errors, requires a high degree of monitoring and “linear” management structures – and is therefore simply not suitable for “trial and error” (which does not mean that one should not learn from errors once they occur).

We therefore believe that in the vast majority of organisations, agile and traditional management processes and structures will have to coexist. Agile, however, is becoming increasingly important given the ever-increasing pace of change faced by virtually all companies. This means that practically no company can afford not to learn agile techniques. Those who do not drive change themselves will be overtaken by it.

The challenge therefore is to reconcile two management methods – and cultures. Few companies are “agile natives” like Spotify – or as manageable and shaped by the spirit of unconventional founders such as Freitag (see also our previous article). In most cases, this means establishing a new modus operandi. Since the majority of companies are still organised in hierarchies, a change to Agile will not work by simply imposing new ways of working on an existing organisation. Rather, there are three points to consider:

  1. Agile must be “lived”. It can only work if top management takes up the cause of Agile and visibly promotes this change.
  2. Employees must be involved. Only if they are convinced of the advantages to be derived from flexibility and customer orientation, and only if they are left to choose their own agile working methods, will they fully support the new ways and “live” Agile.
  3. It takes time… also because Agile transforms the corporate culture – in many cases radically. To avoid frustration, it is important to highlight the benefits of agile work and to take into account how it affects cooperation, values, principles and moods.

Top management must therefore consider: In which context is it adequate and necessary to be and work in an agile way? And where do you deliberately not want to be agile? This distinction and the ability to act both in a conventional and in an agile fashion must be exemplified by top management. The leadership has to show the way and expand its repertoire with agile techniques. This is undoubtedly a challenge for two reasons: First, rarely will it be agile working methods that propelled these people into top management positions. And second, after 20 years of “hierarchy”, many senior executives and Board members won’t have the courage to switch to a model in which they have less control, in which power and influence dwindle, in which they have to give their colleagues and employees more responsibility and freedom – and where, in return, they themselves are under increased scrutiny from below. But if Agile is to work, business leaders must be prepared to leave the beaten track, “unlearn” established habits, be open to feedback, develop a higher degree of trust and accept that not everything is predictable/plannable. Similarly, collaboration with colleagues and employees must be strengthened, decision-making powers must be delegated, and personal concerns (or those of a department) must become secondary to the wellbeing and objectives of the organisation as a whole. Agile will only prevail if the entire organisation can clearly see that top management is leading the way, with concrete actions. As a result, disciplined, self-reliant work becomes more important – and has to be continuously learned and strengthened at all levels of the organisation. In addition, there is a need for increased clarity in structures and processes, as well as for improved coordination.

There are pitfalls on the path to agile transformation – and discipline can become a particular stumbling block. If monitoring is reduced and you have to organise yourself, give yourself feedback, etc., you need more discipline. It also requires a higher level of motivation and initiative. There are, of course, people who are good at taking orders and working step-by-step, always in need of someone who sets the pace, assigns tasks and controls. Where this kind of attitude prevails, agile work becomes difficult, if not impossible. Agile transformation initiatives therefore have to pay attention to the concrete context, not only with regard to different sub-cultures associated with corporate functions, but also to geography: agile, self-determined working methods will be easier to adopt in a society that highly values individuality and personal freedom than in traditionally collective and hierarchically structured societies.

So, what about top management? When employees organise themselves in teams and work more independently and autonomously do you even need a “C-level”? We believe, yes – not just because of the cases where the abolition of senior management has led to major complications. But as shown above, even in a “digital future” practically every company will continue to need some hierarchical functions that are characterised by top-down control. And there is also the issue of overall responsibility: the “buck” has to stop somewhere. Someone (an individual or a small team of individuals) has to answer to the owners and other stakeholders (including employees, business partners, society as a whole) of a company. This ultimate responsibility cannot be dissolved – or transferred to a collective of team leaders. Also, taking an overall perspective and exercising overall responsibility is typically a “full-time job” – at least in organisations that aren’t very small-scale. And even a top management team, the C-level of a company, needs to be managed and led in some way: every executive team member may have his or her own area of responsibility but even when there is a commitment to modern leadership techniques, teamwork and “servant leadership” (see following interview with Pascal Houdayer), we believe that in the end someone has to take responsibility for the team and the organisation as a whole.

The CEO as Social Architect

An Interview with Pascal Houdayer, CEO of NAOS
by Carolyn Lutz and Nick Harris

Pascal Houdayer began his career at Procter & Gamble, taking on increasingly senior marketing and general management roles over an 18-year tenure. He moved to Henkel in 2011 and spent 6 years with the group, latterly as EVP Beauty Care & Executive Committee Member. Since 2018, he serves as CEO of NAOS, a globally active family business founded by Jean-Noël Thorel that develops highly innovative skin care and personal care products under the Bioderma, Institut Esthederm and Etat Pur brands.

AvS – International Trusted Advisors: You have worked in 3 very different companies – the US publicly-listed multinational P&G, the established German family business Henkel, and now the first-generation French company NAOS. How would you characterise the differences in terms of management style?

Pascal Houdayer: P&G is very structured, it places a premium on IQ, and innovation is bottom-up because it is consumer-driven. Henkel is a family business, also highly structured; there are clear delegations of authority and strategy is rather top-down. NAOS is very entrepreneurial, the organisation gives a lot of freedom to individuals to be themselves, and the way we do things is more important than what we do; decision we make are driven both by the brain and the heart.

Established brands are losing share to more nimble ‘upstarts’. Is the scale of a group like P&G now a disadvantage, a barrier to growth and innovation?

Scale still retains some advantages: it gives investment power for innovation, enables you to go global easily, and helps search & reapply in ways that small companies have more difficulties to reach. But the scale of a large group also holds some clear disadvantages in terms of a lack of agility and speed, as we see today a lot of smaller, more nimble and digital business models that act faster than larger physical ones. Smaller companies have faster decision-making because there is no need to navigate up the chain of command, from local to regional, and regional to corporate HQ, and back down again. In my experience, P&L management can be very complex in big companies, thus you might lose personal ownership because of complex matrix structures.

How has your own management style evolved? What was the biggest change that you had to make and what triggered it?

The biggest change in my management style was to move from IQ to EQ, then EQ to AQ. My initial focus was on IQ, as the P&G school places a premium on it with emphasis on analytical and strategic thinking. Then my first learning was to extend IQ to Emotional Intelligence (EQ), leveraging more human emotions and empathy, driven by the need to manage and lead bigger teams. I then observed that in today’s VUCA world, IQ and EQ are not enough anymore, and that you need now an Adaptability Quotient (AQ): the capacity to constantly learn – to absorb all the signals from consumers, retailers, insights, trends – and adapt. The shift to AQ started when I first travelled to places like Palo Alto and saw digital start-ups. It wasn’t always the smartest entrepreneurs who were the most successful, but the ones who could adapt and be fast. The world now is a village, new ideas come from everywhere and there is no single recipe for success. We have to open our minds to lifelong learning and try to anticipate what comes next.

‘Agile Leadership’ can mean different things to different people. What does it mean for you?

I define Agile Leadership as having no mental patterns, no pre-conceived ideas on what should be. Having an agile and open way of looking at things, recognising what you don’t know, accepting that you have to constantly learn, and adapt to change – or ideally lead it!

What role should the CEO play in terms of Agile Leadership? Does the CEO have to lead from the front, or ‘let go’ and devolve power?

The CEO has to be a role model, he/she has to display agility in action not just in speech. The role of a CEO is not anymore the one of ‘a boss’: I see myself as a ‘social architect’, putting focus on nurturing the culture, the environment, taking care of the people, the organisation design so that we can create together the future of the company. This is very different from the traditional CEO mainly focused on next month turnover, finance, reviewing past results, planning, the 90-day cycle… I believe today’s CEO has to genuinely be in touch with all the employees, all the markets, all the functions, immersing in the communities he/she serves. For instance, I spend a lot of time in the market with dermatologists, doctors and pharmacists discussing how they see the evolution of healthcare; also with consumers trying to understand their decision-making process, and thereby map the future moving from products to services to experiences. As a CEO, I believe you should spend more time in the homes of consumers than in meeting rooms at headquarters!

Can Agile Leadership really be practised in big companies that are beyond a certain size? What does it imply for how companies are structured?

I believe so. NAOS is in 100 countries and 75% of our sales are outside of our home country France, so size does affect things, but the principles are the same. The most inspirational leaders I have known, even in big multinationals, spent their time on planes, meeting people, being in touch – and thereby making the right decisions. Structure does have a lot to do with it. At NAOS, we don’t believe in hierarchy. The organisation we have designed is flat, our leadership team org chart looks almost like a flower with over-lapping petals. Therefore, the speed of decisions comes from the overlaps and the seamless way we operate.

Are there any in-built advantages that Family Businesses have over other types of company in terms of Agile Leadership?

There are some advantages that FBs have, particularly in taking a long-term view – the idea that they exist for the generations to come, that the harder right is more important than the easier wrong. This is a very different way versus only looking at the next quarter or only looking at TSR (Total Shareholder Return). Secondly, there can be a huge attraction for talent – executives can find meaning in their work, feel they have a purpose and that they can leave a legacy.

What do you see as the implications of Agile Leadership for talent attraction & development?

There are drastic differences in the way we select talent. In the past, it was done in a very functional way, and companies were mainly looking for analytical thinking, creativity, collaboration… Today, at NAOS, we look for a balance between functional expertise and their capacity to give meaning to what they do. We want people with a ‘holy fire’ inside them. And, as I said earlier, the talents themselves are looking for meaning in what they do. People come to NAOS because of this – we give them more freedom, faster decision-making, they can combine performance and purpose: we call it our ‘raison d’être’.

NAOS describes itself as “a purpose-driven company with a mission, inspired by a claimed humanist utopia”. That language is very distinctive and sounds more like the mission statement of an NGO than a business! How does NAOS balance humanism and idealism with commercial reality?

The utopian credo comes from our Founder, Jean-Noël Thorel. NAOS is a movement not just a company. Companies have now the power to change society for the better, which became difficult even for governments. For example, in NAOS we see the skin as an ecosystem, that lives in a human ecosystem, which itself lives in a planet ecosystem. We focus on Human Care and acknowledge that we can’t have healthy people if we live on a sick planet. We are challenging this status quo through ecobiology to move from Skin Care to Health Care to Human Care. The factual proof of our approach was given last year by Jean-Noël Thorel, who did an incredible act of faith and donated 100% of his company share ownership to a non-profit shareholder Foundation, which is in France pretty visionary.

Have you had to make any hard choices between values and sales?

Yes. An example would be in the sun product category. There are many ingredients which could be included in sun care products, which are used by many of our competitors and which would have boosted sales for us too. However, some of those ingredients penetrate the skin and the body’s ecosystem, so we decided we would not use them and stopped some SKUs. For instance, Esthederm is the only brand whose sun products are not showing any SPF (Sun Protection Factor) because we believe light is the source of life and that we should live harmoniously with it. We have a different philosophy than the big beauty industry, and we see our ‘raison d’être’ as a fight against what we do not accept, not as a fight vs. competitors.

NAOS proudly states that “for 40 years, we have launched disruptive innovations and registered more than 60 patents”. How can a company create a real (and sustainable) innovation culture?

Innovation is in the DNA of our Founder and our company. Our people want to make a difference, to challenge the status quo on products, services or experiences. And externally, we partner with people who also believe in this “4th way” of doing things.

Since you became CEO of NAOS, what leadership messages have you conveyed to the executive team, and what have you learned from them?

I have learned a lot from the NAOS people – they have re-wired my software, evidencing a different meaning: the goal is not to sell more but to improve lives! Towards them, I have tried to share and role model the concept of servant leadership and of the leader as a social architect.

As a final question, if you could go back in time and give your younger, 21-year old self a piece of leadership advice, what would it be? What do you know now that you wish you’d known then?

That the secret of happiness is to constantly learn and be a sponge. Must confess I have done this much more at NAOS and look forward to continue.

Pascal, thank you very much for sharing those insights!

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New Consultants in Frankfurt

As of June 2019, Philipp Fleischmann joins the German consulting team of AvS – International Trusted Advisors. Philipp started his career as a journalist with daily newspapers (DIE WELT, Handelsblatt, etc.) and TV stations (ZDF, n-tv) before he held management positions in the publishing industry for many years, most recently as Managing Director for the international activities of the Handelsblatt Media Group. He has gained comprehensive executive search experience at the Berlin offices of two international consulting firms, including several years at Egon Zehnder. At AvS – International Trusted Advisors, Philipp will focus on advising the owners of media houses and consumer companies as well as start-up firms, particularly in Berlin. Please click here for further information.

Christian Bühring-Uhle has shifted his main focus back to Europe, returning to the Frankfurt office at the beginning of the year. Christian advises entrepreneurs, equity investors and family businesses on leadership matters (evaluation, recruitment and succession management), as well as the development of shareholder strategies and other complex issues in the area of family governance.

News from our Latin American practice

In March Christian Bühring-Uhle, who continues to be responsible for the development of our Latin American practice, participated in the “Catedra Europa Conference” at the Universidad del Norte in Barranquilla / Colombia, where he gave a presentation about recent developments and the strategic direction of the Port of his hometown Hamburg.


Leadership 4.0

Changing requirements on leadership in times of digitalisation
by Dr. Christian Bühring-Uhle and Felix B. Waldeier

Everyone is talking about digitalisation, the opportunities it offers and the fears it fuels. The discussion often concentrates on how to change or even reinvent business models in order to meet the challenges of digital transformation. Typically, the focus is on strategy, sales, supply chain and communication.

Digital transformation, however, does not only affect business models or the use of technology, but above all, it imposes new requirements on organisation and leadership. Fundamentally new forms of cooperation have to be formed, and it is not technology that is the scarce resource in this regard, but leadership. The success of transformation depends primarily on people changing their behaviour – and that in turn is strongly determined by the methods and quality of leadership. Due to the far-reaching and profound changes that come along with digital transformation, resistance levels can be especially high, and resistance is often ingrained, due to inertia and lack of flexibility. People are at the centre of this transformation, which makes it crucial to attract, motivate and lead talented and digital-savvy employees, but also to continuously develop and retain them. The CEO has a particularly important role to play here.

After all, a digitalisation strategy is only as effective as the organisation, and that ultimately means the people who implement it. In the words of Peter Drucker, “culture eats strategy for breakfast”.

A digital culture is characterized by the following main features:

  • Openness and customer orientation instead of navel-gazing
  • New, constantly changing tasks and roles
  • Eagerness to learn and experiment instead of excessive planning
  • Constant feedback and perceiving mistakes as an opportunity
  • Emphasis on delegation, creativity, autonomy – little control
  • Networked collaboration and mobile working
  • Team players instead of hierarchical management

In order to build a digital culture, it takes:

  • Momentum: A strong leader and visible figure must embody and drive the process and win people over. This can be the CEO him or herself, or some kind of “digitalisation champion” – as long as people are inspired and given enough freedom to take the transformation into their own hands to some extent.
  • The right degree of centralisation: Providing the necessary level of efficient resource allocation and standardisation without restraining the freedom required to experiment with digital working methods.
  • Agile working: Away from rigid, hierarchical processes and towards fast, interdisciplinary, experimental teamwork.
  • A learning organisation: Structures, resources and incentives that make lifelong learning and permanent change central to the organisation’s self-image.
  • The willingness to “unlearn”: Just as important as learning new working methods is to abandon well-rehearsed and well-established procedures, and to be prepared to engage in new approaches.
  • A digital talent pipeline: The facilitation of ongoing training and the systematic promotion of digitally thinking and agile young executives.

This transformation might not be easy, as it requires the organization to brace for the “war for talent”. Existing employees must be evaluated and developed systematically, and new digital talents attracted continually.

The development of digital talent in corporate management presents a particular challenge. In many cases, external management talent has to be recruited. But in this “new world”, the search for digital top executives has become even more difficult. It starts with the fact that it is much harder to define the qualities a digital talent must bring to the table. Classical hierarchical management structures have to be dismantled, “horizontal” collaboration, greater team orientation and working in decentralised teams is becoming more and more important. This inevitably changes the way we work together, and ultimately the way we lead – and the requirements for today’s executives.

Job profiles are less clear cut and can also include an increasingly high technology component, which is why in many cases the ideal candidates can no longer be found in the “typical industries” or with a direct competitor. This in turn means that in the search for digital leadership you often have to think “out of the box” and consider atypical candidate profiles (e.g. commercial leaders and non-HR managers to head the HR function). And because business models are changing much faster than before, managers in particular need to be more flexible and have the ambition and ability to adapt to new and unexpected situations and challenges.

A further effect of the paradigm shift in corporate management caused by digitalisation is that managers must be able to deal with “millennials”. They work differently, are motivated differently and thus need to be attracted in a different way. In particular, they tend to have a desire for a sense of purpose, meaning that they want to feel good about the consequences of their work. This increases the importance of employer branding and the need to credibly communicate that a new work environment has been created that is aligned with their interests and needs and that is constantly being improved.

Building a digital corporate culture and an attractive “employer brand” for millennials is a big task and can require a significant investment – but it can be a powerful driver for maintaining and increasing corporate value.

Digital Board Members

A do’s and don’ts guide for traditional Boards
by Carolyn Lutz and Nick Harris

Several editions ago, we had the privilege to interview Frits van Paasschen, who had just authored an insightful and compelling book on the challenges of technological disruption on established business models, “The Disruptors’ Feast”. Two lines that come early in the book make crystal clear the scale and speed of the challenge: “The digital revolution will make the industrial revolution seem like slow motion… If you don’t think digital disruption is coming to you and your profession, you are deluding yourself.”

And in our last TTA edition, we looked at some of the challenges and benefits of improving (gender) diversity on Boards.

In this article, we try to draw these two strands – diversity and digital – together, and investigate some of the do’s and don’ts for traditional Boards who want (need!) to become more future-oriented, diverse and digitally savvy.

Many (most!) Boards of publicly traded, as well as family-owned businesses simply do not have a considered digital recruitment strategy, and do not fully understand how this talent pool thinks and behaves.

It is critically important to understand that demand for digital talent, whether at the Board or management level, far outstrips supply. And whereas the common, safe assumption used to be that most senior executives would want to take on a Board role at some stage, it is not a given that digital talents want to become a director of even a bluechip corporate. The things that they value most in business life – autonomy, entrepreneurial freedom, openness and high frequency of communication, lack of hierarchy, quick decision-making, fast results – are qualities that they perceive (with some justification) to be lacking in larger or more traditional organisations. One well known digital entrepreneur we spoke to recently described the idea of being in a big group as “torture”.

Furthermore, digital talents approached for NED roles will often be sceptical that an organization really has the desire, particularly at the Board level, to undergo a necessary transformation or change programme. Even a cursory glance at the existing organisation can be enough to put them off – another digital leader we spoke to recently about their interest level in Board roles noted, in an incredulous tone, that most current NEDs “can’t even be bothered to create LinkedIn profiles”. What helps in attracting them is if they already have first-hand experience of a company’s products or services, or can otherwise associate with an enterprise’s brand or purpose. A “meaty” Board mission or agenda – e.g. transformation, turnaround, expansion – is almost always viewed as being more attractive than a steady-as-she-goes trajectory.

“Like hires like” is a well-known issue in recruiting. This inclination may still persist when “analogue” Boards look to bring in a digitally savvy Non Exec, but here the risk is that if they start a search process with that bias, they will likely end up hiring no-one at all. The reality is that digital natives often scare traditional Board Members because they do not look or behave at all like the existing NEDs. They are often (much) younger, (much) more outspoken, less polished, and used to greater autonomy. And their CVs show non-linear career tracks, and experience gained from start-up and entrepreneurial businesses rather than big corporates with well-known brand names.

How they will interact on your Board, and what their expectations are of how the Board operates, may well be seen as challenging. It is interesting to note in this context that “digital” hires to the Board over the past decade are much more likely to be female (25%), or born outside the country, than standard NED hires. This may be a case of Boards trying to tick two diversity boxes with one hire, or simply an indication that digital natives as a class are more heterogeneous, international and mobile than previous generations.

Set against this context, we set out some “Do’s and Don’ts” for traditional or monochrome Boards on recruiting Digital Non Executives:


  • Do be aware of why you are doing this: put simply, more diversity equals better decision-making.
  • Digital Board searches need to go wider than those for traditional NEDs – looking at non-traditional functions, internationally rather than just in the local city/country, and further down the organisation chart. Draw on a broader range of background, experience, skills and age to complement, rather than copy, the existing Directors. Contrary to received opinion, NEDs do not need to have been a CEO!
  • Do hire more than one: the goal is to build a diverse Board, not to “tick a box” or make a token appointment. The evidence is now compelling that diverse teams are more effective. The Board should therefore be thought of collectively. The ideal composition is a blend and balance of different backgrounds and complementary experience.
  • Do listen: digital NEDs can add strategic value to a business by virtue of their different vantage point – spotting new business opportunities that the Board would otherwise overlook (e.g. new customer interfaces, AI and machine learning, employee branding and engagement programmes, acquisition targets), and identifying threats that the Board may simply not be aware of (e.g. cyber security, reputational damage on social media, upstart competitors with disruptive technology).
  • Do lead by example as a Board – a digital culture will not automatically cascade down throughout an organisation just because you appoint a new NED. All the Board Members have a role to play as cheerleaders and advocates for the company´s digital future.
  • As a Board Chair: be mindful that you set not just the agenda but also the tone of Boardroom discussions, and the rules of engagement. You should devote conscious attention to ensure that all voices are heard, that there is sufficient time for questions and that discussions do not just skim the surface of a topic. With their more traditional Directors, the Chair may have to underline the credo that everyone has an (equal) say. With their digital NEDs, the Chair may have to coach on the communication style that is most appropriate and effective in such a forum (e.g. in plain English rather than overly-technical jargon or too fine a detail).
  • It is also a good idea for the Chair to assign the new NED a mentor from among the experienced directors, to encourage learning (both ways) as well as bonding.
  • Companies should ensure they have a comprehensive onboarding and induction programme for digital NEDs. Often a good hire has been lost prematurely not because they were the wrong person but because of early misapprehensions, poor understanding of stakeholder dynamics, and lost opportunities to demonstrate an early contribution.
  • NEDs from specialist backgrounds should make a conscious effort to contribute to topics beyond their area of technical expertise. A Directorship should be viewed as a learning experience, and one which will make them better managers in their day-to-day roles.
  • First-time Digital NEDs also need to be aware that a Boardroom, especially one of a publicly traded company, will function differently to the management meeting of an internet player. Corporate governance and operational management are not the same.
  • And, as a final piece of “do” advice, we would strongly recommend to aspiring Directors that they undertake a formal NED course with a well-regarded institution such as the IMD or INSEAD business schools, or the FT. This is great preparation, both as a primer for what good looks like in corporate governance, as well as a broadening training into areas such as finance, risk or HR that the executive may not have gained prior exposure to. It is also a signaller of intent that they are looking for a NED role and would take such responsibilities seriously. Lastly, being part of a NextGen NED class provides both good networking opportunities and a support community.


  • Don’t assume that digital is predominantly an “operational” topic that is beneath the consideration of a Board whose mandate is to outline the “strategic” agenda. Digital is now fundamental and intrinsic to understanding the big picture; a corporate strategy that does not take digital sufficiently into account will be fundamentally flawed from the outset.
  • Similarly, don’t assume that digital is a topic “just” for your new digital Director; everyone on the Board needs to work on their level of digital savviness. This is a trend that you cannot run or hide from forever. (Tip: Even a Chairman needs to know how to engage with social media – and to have a presentable LinkedIn profile!)
  • Set aside preconceived notions that lead to hiring like-for-like: not all NEDs need to have served as a CEO of a large company. Not all NEDs need to have “grey hair”. Accept and embrace the fact that a digital NED is likely to be younger and may have a career track that is a-typical.
  • Don’t hire just one: a lone voice and outlier – whether a digital native, or the only female NED – is too easy to ignore or side-line. It’s also unfair on them – they run the risk of being seen only as a narrow, topic expert and not an equal. At best, you won’t get the full benefit of their perspective. At worst, they will get frustrated and quickly leave. The composition of the whole Board needs to be carefully considered; this is a materially different exercise to merely swapping out a retiring NED for an identikit replacement.
  • Related to the above point, don’t assume that any one digital Director will be sufficient if the organisation requires a wholesale digital transformation. The digital universe is now so vast (e.g. social marketing, e-commerce, big data, cyber security, consumer privacy, FinTech, AI, etc.) that no one person can be a deep expert in all dimensions.
  • Don’t underestimate the impact of cultural or generational differences. The working and communication styles of digital natives may be very (sometimes radically) different. Improving the digital literacy of the Board will pay off for everyone in the long run but don’t assume it will always be plain sailing or that everyone will speak the same language from day one. Traditional Directors will need to broaden their vocabulary, and expect more questions about “purpose”, “impact”, and “customer centricity”.
  • Last but not least in this list of things “not to do”, a piece of advice for first-time NEDs: do not compromise on your values and ethics, or surrender your independence of thought. You were hired for a reason, and – as easy and tempting as it may be to rubber stamp decisions – it is incumbent on you to speak up, to question, to propose new ideas. Diversity of opinion is critically important for a well-functioning and effective Board.

It is worth restating that Board diversity should not be seen as a PR exercise. Put simply, diverse Boards are a proven driver of better decision-making.

The industry’s pace of change has never been so intense

An interview with Jan Zijderveld, CEO of Avon Products Inc.
by Andreas von Specht

With net sales of US$5.7 billion, Avon is the second-largest direct selling company in the world. Avon offers products in the beauty, household and personal care categories through its network of nearly 6m Avon Representatives. Direct selling companies such as Avon are facing significant challenges in the digital age; not only are consumers increasingly shifting their purchases online, but technology has enabled brands and retailers to offer more personalized services, a key competitive advantage previously owned by direct sellers. How is Avon going to react? TTA talked to CEO Jan Zijderveld about his mission of change.

What is special about Avon’s business model and why do you hold on to the business model of direct selling?

Unique to Avon is our woman-to-woman network of Representatives (“reps”), our belief in democratising beauty – making the latest trends and innovations accessible to all through value products – combined with our capacity to educate, engage and mobilize. I believe that the power of people selling to people is phenomenal. Our brands are known and appreciated worldwide – with virtually 100% brand recognition in major markets. From our earliest days we have been a business built on relationships of trust and care. Our network of beauty entrepreneurs gives us a direct and genuine relationship with consumers. So the Avon experience really is personal. Our six million reps know and love the products they sell because they use them every day and have a shared passion for innovative on-trend beauty. I have met hundreds of them and they believe in Avon. In a world where trust in companies is becoming a scarce commodity, our Rep’s relationship with consumers gives us pricing power, communications power and gives our customers a richly personal brand experience.

What challenges is a direct seller like Avon facing and what do you plan to do about it?

The industry’s pace of change has never been so intense. The digital world is faster and networks are wider. But flexing with the times must be part of Avon’s DNA. We need to modernize Avon and we need to be bolder and more dramatic – disrupting our ways of working. We need to open up, and start challenging and changing how we work and what we work on. That means rejuvenating the Avon brand, making our products and category portfolio work harder for us, and unlocking the power of digital for our beauty entrepreneurs across the world. Our geographic footprint positions us for growth: the majority of our business is in growing emerging and developing economies. Our main category – beauty – is high margin, high-involvement. And crucially, we are digitizing our business to make it easier for both beauty entrepreneurs and customers to do business with us. Borrowing a page from the playbook of fast-fashion brands, we are transforming Avon to become a high touch, high tech, high impact and fast beauty brand. We’re taking a fresh look at everything, with the sense of urgency that you would expect.

How are you trying to maintain Avon’s business model in the age of digitisation?

Digitisation is at the heart of our strategy. Social selling is ripe for technology, digital and analytics. We are working intensely to build the right tools to support our 6 million strong network of reps to help them provide a personal service to their customers that is underpinned by strong digital capability. Having no intermediaries between the brand and the consumer and our beauty entrepreneurs is for me one of the biggest opportunities of the Avon business.

What are the individual steps that are being implemented in order to become a “digitized Avon”?

The term ‘digital’ can be open to misinterpretation and confusion.  For us, it means the digitisation of the whole business – from the front-end, backwards throughout the value chain. Avon is undergoing a period of significant change and customer-friendly digital interfaces, supported by an efficient technology infrastructure and rich data analytics, are a key strategic driver of our future progress. We have already launched a fully digitised, mobile-enabled e-interactive brochure, allowing our Reps to connect quickly and effectively with their customers by creating an e-enabled personalised shopping cart that can be shared via WhatsApp and Facebook Messenger – sending the latest trends and products directly to their mobile devices. This includes in-built and real-time analytics for future enhancement and customisation, making it easier to track best-selling products and individual preferences etc. On launch, it received more than 500,000 visitors, with positive feedback from across Avon’s network of beauty entrepreneurs. Plans for My Avon Store are also underway. This will allow our e-reps to host their own store and run a fully digital business. Finally, we are very excited about the overwhelmingly positive response to the pilot of our new ‘Personalised Beauty App’. This is a revolutionary digital tool that will empower Reps to deliver a whole new level of personalised service to customers – quickly, conveniently and with confidence. Early results suggest that this technology provides a benefit that really resonates. We’re solving a problem and that’s powerful.

You are talking about a major shift of the Avon business model. Did you need to exchange your top management team to implement this soft digital revolution? 

We have continued to inject new talent and capabilities into the business. This includes the newly-created role of SVP, Chief Digital & Information Technology Officer. Benedetto Conversano is an outstanding talent and we will benefit from his consumer-focused digital, technological and operational skillset. He will be responsible for developing a new digital strategy as a foundational element of Avon’s future plans, while building, developing and standardizing technology solutions and delivery across the global organization. We are committed to radically rethinking how we exploit digitalisation as a game changer – evolving to become a fast-beauty brand for the omnichannel world. So our new Global Sales Organisation is also key, made up of leading experts to be deployed directly to markets for immediate impact. Focusing on enhancing the Reps experience and service model evolution, Reps segmentation, field sales excellence, commercial optimisation and entry strategies for new territories, it will use data driven insights to tailor the training and incentives that fuel Avon’s beauty entrepreneurs. We know that improving earnings potential, expanding learning opportunities and scaling best practice are fundamental to achieving our targets and sharpening Avon’s competitiveness. We are building the right structure to institute a rigorous performance culture, one where we dramatically step up accountability for end-to-end execution and results.

Did you create something like a ‘digital advisory board’ of external business leaders and/or experts with deep experience in digital organization and transformation – or are you managing the transformation process on your own? 

As part of our digitalisation ambitions, we are building a new “digital board” comprised of digital, commercial and other business leaders. Benedetto‘s role includes being Chair of Avon’s new Digital Board, which is essentially accountable for Avon’s digital transformation. The Digital Board will work closely with Avon’s Board of Directors and Executive Committee, in order to boost growth and keep digital at the forefront throughout the business.

Digital is transforming everything from consumer behaviour to employee engagement. What is the cultural change at Avon that you expect to see in the course of your transformation?

Avon is a very strong brand with a sense of warmth and likability that is really, really powerful. But at times our culture has been too internally focused and siloed. Everything is up for grabs. We’re going to be a simpler, faster, more agile business. And this starts with a different mind-set, one that is open to re-assessing the assets, infrastructure, partnerships and alliances. So the transformation already underway marks a shift away from a cumbersome and quite closed business to a nimble and open company. In other words, we are going to open up this company.

Many traditional companies are having to shift focus from top line to bottom line, further complicating the imperative of investing for the future. Further, they are at a stark disadvantage compared with start-ups, whose investors are willing to forego profit for growth. How do you resolve this conflict of aims?

I know the start-up methodology inside out and it is key. Everything is done in 2-week sprints, with clear KPIs and a tight PMO. That is how we are working as we accelerate to become a fast-beauty brand. We are investing in commercial initiatives, digital and IT infrastructure, and we are on track to stabilize our financial results and achieve our goals of low-single digit revenue growth and low double-digit margins by 2021.

Consumers are no longer isolated entities; instead, they move in self-organizing groups. The membership and subscription-driven business models tap into this desire to belong, even at the price of sharing personal data. Do you see this happening at Avon as well?

Avon believes that it is hearing the stories of our consumers – the deeper stories, the ones that go beneath the surface as well as above it, will give us our biggest connections and our biggest breakthroughs. Today’s consumers are stressed, busy, overwhelmed with information, and they are looking for brands to address their unique needs. The beauty consumer of tomorrow doesn’t want to have to tell you how she wants a product to make her feel; she will expect you to already know. She will be buying into brands to facilitate meaningful connections to lifestyles and beliefs. She wants to feel as if her products have been made just for her. Connections and conversations are, and always have been, at the heart of Avon. That direct contact with consumers means rich data, analytics and the personal approach to beauty that enables self-expression and inspires confidence that is grounded in the everyday experience of millions of women.

The rise of millennials is driving significant shifts in consumer expectations. They demand transparency and immediacy, and place little value on brands. How is Avon trying to embrace this segment?

In today’s market, authenticity is everything. Which makes it vital for us to innovate and tell our story better. We are proud to be empowering millions of micro entrepreneurs globally, giving them the tools to work in their own way and on their own terms. Avon is much more than a business – it’s a movement of women. With major sweeping social change afoot, we believe the future is full of possibilities for women, and our beauty entrepreneurs are in turn helping to reinvigorate our core purpose as a business. Interestingly, in the last 12 months, 45% of the women who have joined us are under 30. Those front-line Reps are also vital to the insights that feed breakthrough innovation and we are now delivering the newest trends faster than ever. For us, it’s about democratizing beauty, making it accessible by bringing our customers great products and the latest trends and technology at amazing value. Premium skincare is growing very, very fast so that’s a key focus. Asian beauty, Korean beauty, Japanese beauty are all huge, particularly for the millennial audience. So we are going to really look at those growth segments and go after them. Beauty is becoming increasingly complex but it is interesting that the sometimes-fickle millennial market can actually be very loyal brand consumers, especially where a brand is grounded in strong values.

You joined Avon from FMCG giant Unilever. What are your personal challenges to succeed in this mission (almost) impossible? Did you need to adjust your own style and modus operandi?

After 30 years in Unilever, having lived in seven countries, many different parts of the world, seen many, many different businesses, many different challenges and cultures, I see Avon as a business with a potential which is difficult to overstate. I love a challenge and my modus operandi has always been to do what is worthwhile, not what is easy. Can we get this business back on the front foot and drive it to the next level? Absolutely. That has to start with a deep understanding of the root issues facing this business as well as the key strengths to leverage for the future. Avon needs a fundamental reset, and that will need time, but we’re well on the way.

Jan, thank you for these insights!

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

First Industry Advisors to join AvS in 2019

We are currently inviting a small group of senior “Industry Advisors” from several countries to join AvS – International Trusted Advisors as of 2019. Former industry CEO’s, CFO’s, Senior partners of global professional services firms and active NED’s have agreed to consider joining an in-house board to act as sparring partners and sounding-boards to our partners – and ambassadors for our firm in their respective markets.

Global cooperation with PwC and INSEAD

An agreement has been reached between PwC, INSEAD (Wendel International Centre for Family Enterprise) and AvS – International Trusted Advisors to conduct a global study with qualitative and quantitative research on the subject of “Making external leadership successful in Family Businesses”. Our findings will be published 2020 in several languages, used in educational activities and presented in round-tables and other PR-related events to present around the world.

News from our Latin American practice

In September, our Partner Christian Bühring-Uhle acted as a juror for the final strategy projects of the MBA class of Universidad de Los Andes, Colombia’s most prestigious business school.


No pain, no gain!

The critical role of diversity on Boards
by Carolyn Lutz and Andreas von Specht

Diversity on Boards is very important. It’s a proven case – and there should no longer be an open question as to why. As Michael Hathorn pointed out in our interview with him for this edition of “The Trusted Advisor”, there are a large number of studies around from recent years which confirm a straightforward and compelling business case. Companies with (gender-) diverse Boards make better decisions and produce higher returns. Board success and competence includes diversity as an essential element rather than as an afterthought or as a concession to special interests. Moreover, CEOs who have crafted a diverse and effective Board are respected as secure, modern leaders who ‘get it’.

While the business case for Board diversity gains acceptance, Board composition is only slowly evolving along a continuum, from homogenous to diverse. On the one hand, the homogenous ‘Board of the past’ that has the requisite ‘business leader’ names, is relatively easy to manage, and complies with the general direction that the CEO would like to take the company. Contrast that to a high-performing diverse Board that listens and challenges, and which by virtue of the age, ethnic or gender diversity of the individual Board members offers a breadth and depth of insight, perspective, and experience that will help the Board question its assumptions and make better decisions. The Business Roundtable, a highly influential group of corporate executives, recently released a statement that explicitly links higher Board diversity with better Board performance in the two key areas of oversight and value creation.

Diversity goes well beyond just male and female – it can also manifest itself in individuals with different skills, life experiences, and philosophies. The whole point of a diverse Board is to avoid ‘male, pale, and stale’; to get a fresh view of challenges and opportunities, and to use discussion, different mind-sets and push-back to arrive at the best solution for the business. Having a broad range of collective attributes, rather than overlapping redundant competencies, positions the Board to better fulfil its governance and strategic oversight mandates. Hence, in our view it is a strategic risk, and a liability, to have an overly homogenous Board.

Most organisations have a highly diverse customer base – one would think it must make perfect sense to aspire diverse points of view represented in the most important discussions and decision making around the organisations’ future goods and services. Great ideas can come from disrupting ‘the way things have always been done’ – innovations catering to previously unknown or underserved markets. Multiple-perspective analysis of problems can change the Boardroom dynamics and is more likely to yield high-quality decisions than decisions made under a ‘groupthink’ environment. Of course, the latter is probably more comfortable, less challenging and less stretching.

The company that has a diverse Board can also enhance its attractiveness to its (hopefully diverse) workforce by sending a strong signal that developing women and minorities is important to the company. This holds equally true in attracting new talent from outside the company. Given the war for talent, no company can afford to send the signal that they do not value diverse talent.

A diverse Board will certainly enhance the organisation’s reputation vis-à-vis investors. Institutional investors have taken Board diversity into account as a factor for investment evaluation since a number of academic research papers show positive correlation between firm value and Board diversity; institutional investors are also placing greater emphasis on corporate social responsibility. Board diversity can therefore, to a certain extent, improve investor relations.

A simple and common measure to promote heterogeneity in the Boardroom – commonly known as gender diversity – is to include female representation on the Board. While this sounds like an easily implemented and logical solution, particularly for organisations whose customer base is predominantly female, in practice many boards are still 100 % male, or have just one token woman.

Reasons for failure to hire diversity candidates are numerous: it starts with a common resistance to change. In Board recruiting processes, we are often confronted with a ‘wish-list’ prerequisite for a new NED to have served as a successful CEO. This becomes a bit of a Catch-22 and automatically narrows the list of suitable diversity candidates. Other reasons can be cultural; in male-dominated countries women are often denied or discouraged from the educational opportunities, professional development, networks, and mentoring that would equip them to one day add value on a Board. Societal norms have thus made women less likely than men to raise their hands for certain professional challenges.

Around the world, progress for gender diversity on Boards is at best mixed; at the current rate of ‘improvement’ it has been calculated that we will not reach gender parity until the next millennium. However, Board diversity can be promoted by a number of methods: through imposing quotas on the Board; or by enhancing disclosures using the ‘comply or explain’ approach with the hope that companies will enhance their diversity to avoid tarnishing their company brand.

Imposing quotas refers to the mandatory requirement in appointing a minimum percentage of female directors. Since 2006, each listed company in Norway has had to ensure that women fill at least 40 % of directorship positions. In 2016, Norway had 45.4 % female NEDs; and 34 % foreigners, which can also be seen as ‘diverse’ since this implies a different language and culture. Most European countries have implemented similar mandatory requirements for gender diversity (with the exception of Switzerland, which has ‘recommendations’). In 2016 Germany, women held 26.4 % of NED roles at companies subject to quotas. Interestingly, 60 % of companies not subject to quotas in Germany had 30 % or more women on their Boards.

Another measure to enhance Board diversity besides quotas is through transparency and disclosure. Companies, under corporate governance codes, are required to disclose their diversity policy in appointing directors so that investors and stakeholders can make proper evaluation. Those who fail to implement such measures have to explain their non-compliance in the corporate governance report or equivalent. The Corporate Governance Code of the United Kingdom (2010), for example, stipulates that companies are required to incorporate diversity as a consideration in making Board appointments, to describe the Board’s policy on diversity in their annual report, and to report progress in achieving the objectives of that policy. In 2017, the largest 100 companies listed on the FTSE had 33.3 % female non-executive directors, and 24.5 % non-nationals. A 2017 Cranfield study interviewing experienced Board evaluators concluded that “(the evaluators) were extremely clear about the considerable benefits of a critical mass of diversity in the Boardroom (often defined as three ‘diverse’ individuals)”.

Switzerland, with no female quota requirement, is slowly catching up on gender diversity on Boards. In 2017, in the 20 companies comprising the Swiss Market Index, 22.2 % of directors are women – and 37 % of NEDs appointed in the past 12 months were women. The country scores among the highest for international Boards, with 61 % being non-nationals.

In order to promote diversity in Board composition, Boards should become more familiar with director search approaches to identify qualified candidates that would not otherwise come to the attention of the nominating committee. For us it is not surprising that we are involved in director searches where Chairmen specifically want us to identify candidates who operate beyond their typical field of view. We still need even more Chairmen to muster the same courage!

Only the bold will survive

Why age diversity is an issue Boards should consider
by Anthony Harling and Dr. Christian Bühring-Uhle

For some time diversity has commonly been identified with the gender balance on company Boards. Over the past 20 years, there has been a concerted effort by companies to bring more women onto the Board and the positive effects of this trend are well documented. However, this is not the only facet of diversity. A truly balanced Board will more accurately reflect the wider population of the outside world, not only in terms of gender, but also in terms of age, ethnic background, national origin, and regional variation. Companies are more aware of gender diversity today and there is still work to be done in this regard. Age diversity could be the next hot topic, considering that Boards actually are quite “old”, and “ageing”: the median age on Boards of S&P 500 companies grew from 61 in 2005 to 63 in 2015.

There has been relatively little research on the impact of age diversity on Board performance, so there is perhaps not enough evidence to draw any firm conclusions. A recent study of companies on the OMX Stockholm, however, did look beyond the issue of gender diversity and focussed on the impact of age diversity. The conclusion that “age diversity significantly affects firm performance as measured by ROA” is worthy of note.

The increasing focus on corporate governance in recent years has been accompanied by increasing criticism of the age-old practice of “male, domestic, old” (“zu männlich, zu deutsch, zu alt” as the Sueddeutsche Zeitung describes it). The rules have changed and forward-thinking companies are taking the lead in bringing on board a more diverse population of Board members in the hope that this will change the way that the company thinks about current issues.

What are companies doing? Why does age diversity matter? Some large US companies have been quite bold in their approach. The US retailer Macy’s appointed a 45 year-old EVP from Starbucks to their board in 2014. Annie Young-Scrivner had a successful track record in her prior general management roles with PepsiCo and Starbucks when she joined the Board of Macy’s. Nevertheless, the appointment of someone with no prior CEO or Board experience elsewhere represents a significant departure for such a large, high-profile business. The success of this appointment is indicated by the fact that Macy’s went on to appoint 42 year-old Leslie Hale, executive vice president, chief financial officer and treasurer of RLJ Lodging Trust, to the Board in 2015. Starbucks appointed Clara Shih with 29 in 2011. Closer to home we have the example of Dr Christina Reuter appointed to the Supervisory Board of Kion Group AG in 2016, at age 30. Younger, talented executives with no prior Board experience are starting to make their mark.

What could be behind these moves? There could be many reasons.

Firstly, as with any other Board appointment, it is clear that any external candidate will need to bring the requisite skills, insight and capability that any appointment at this level demands. It is not enough to be younger than the average age of existing Board members, the candidate has to be exceptional as well.

The move towards a more diverse Board profile can give the company advantages in many areas. Shareholders may be interested in the novelty factor for a while, but it is the overall financial performance of the business that matters most in the long term. It is quite likely that a younger, more diverse profile brings the company greater insight into consumer behaviour. And it will it help the other Board members to better appreciate the impact of technology and social media on their future business. It is also bound to lead company Boards to demanding a greater degree of innovation, a greater pace of change. Externally companies are facing an ever-changing and fast-moving world in which the old certainties are being challenged by new, agile competitors and new realities. It is not enough simply to react to these factors; companies need to be pro-active in anticipating and preparing for a different world. Only the bold will survive.

What are the obstacles to greater age diversity on Boards? What is there to stop this happening? Age diversity in the Boardroom is not going to be a matter of legislation in the short term. There will be some companies who see this as an urgent priority, others who are not so concerned. In practice it will depend on the will of the Board as a whole. If current Board members are concerned for fear of “rocking the boat”, then change is less likely to come about. Will younger Board members be able to balance the requirements of external Board membership with the demands of their current executive role? Will they be taken sufficiently seriously by their Board colleagues? The experience of Macy’s and other Boards suggests that these issues can be overcome. The more challenging question is where these people can be found.

Unless they have worked with someone before in a prior role, no one knows how a new colleague or Board member is likely to perform. Especially if the potential Board member has no prior experience of acting in this capacity. The requirement, therefore, must be clearly understood beforehand. The Board may also need to consider the topic of governance more broadly in order to evaluate this possibility. At a minimum, this is something that current Board members will need to think about and discuss.

What is it that we should be doing today that will position us for success in the future? How important in the question of age diversity for us today? In our view, age diversity is not a “nice to have”, it is a matter of sustainability, even survival – and it is much more fun!

How Board diversity drives company performance

An interview with Dr. Michael Hathorn, Professor of International Business
by Nick Harris, Felix B. Waldeier and Karin Onater

AvS – International Trusted Advisors: Diversity is an intensely discussed topic in the business world. Could you tell us something about the commercial advantages for companies committed to building top teams with a high degree of diversity?

Michael Hathorn: The business case has been building for some time and is quite compelling, with a large number of studies that strongly correlate more gender diverse boards with higher performance on the typical financial metrics. The Credit Suisse Research Institute, for example, showed that companies with higher proportions of women in decision-making generate higher returns on equity and maintain a more conservative balance sheet. Other studies confirm that where women are the majority of top management, the business has higher sales growth, higher cash flow returns on investments and lower leverage. When you have only one woman on the Board, there is the risk of tokenism and the inevitable discounting of that person’s views. You only overcome that effect when you get a critical mass. Firms with three or more women on their Boards produce the highest impact on corporate financial performance.

What is behind this correlation between female executives and business performance improvement?

Decision-making and internal team processes appear to be more robust when there is substantial female participation. Studies conclude that women spur a deeper debate on key issues and that gender-diverse teams come up with more innovative solutions, which is critical for company survival and strategic impact in today’s very turbulent world. Furthermore, women have higher attendance rates on Boards than males do and set a new norm for their Board. As a result, male attendance rates go up as well. There are also fewer strikes and layoffs in crisis times under female leadership, measures that can be very costly for companies in the long term. Another, maybe more subtle impact of having females on Board is the improvement of corporate reputation. Many companies find themselves under a lot of pressure from their stakeholders to diversify their Boards. Consequently, a company becomes more attractive as a recruiter for female executives who appreciate a diverse approach. By doing this they gain preferential access to a much larger pool of talent. Again, these effects are not present with only one female on the Board.

If the advantages of diversity are so compelling, why do so many companies still have Boards that are monochrome?

There are a number of systemic issues that are extraordinarily difficult to overcome. First, change is difficult, and culture is persistent. There is a tendency to maintain Board recruitment processes and behaviours over time, which tend to produce very similar Board compositions. Additionally, we can observe the talent selection phenomena of “cloning”. People tend to feel more comfortable with those who are similar to them, which consequently reinforces the selection of male Board members. Another important systemic issue is that talent pipelines in organisations becomes increasingly male as the hierarchical levels increase. This results in senior talent pools that are predominantly male. However, there are enough qualified women who could rise to the top. For instance, balancing family and work is still a big barrier for women moving up the career ladder and becoming “Board ready”, but female executives usually experience a significant “work-family” challenge only over a relatively short period of their working life, perhaps 10-20% of a 40-year career. If you have identified the right talent to drive your company forward, it is worth bridging that period with creative solutions that keep female talent engaged.

Do the specific values and long-term orientation of family companies constitute an advantage in building diverse teams, compared to publicly traded companies that might operate under a lot more pressure?

The values part of this hypothesis is not consistent with my experience. I have worked with a few family companies where a commitment to patriarchal values has resulted in the less talented family member assuming a leadership position due to their gender. However, I do accept that family companies are often able to leverage a longer-term orientation toward the business as they are free from the short-term market pressures of listed companies. It is in general difficult for companies to change culture and adjust themselves to the challenges that exist in today’s world, regardless of their type. That said, I believe culture can be an important driver of strategic advantage. Google, for instance, is a listed company that adapted to the needs of its employees by offering child care, flexible working hours, leisure activities and many other benefits. Performance standards are nevertheless very high, and meritocracy seems to be a key value. Many companies equate presence with performance and do not realise that employees appreciate and become even more engaged in a flexible working environment where the quality of their work is the key metric. Companies should make use of today’s technology to increase flexibility and adjust their working environments, while continuing to focus on performance.

The “Nordic model” is often held up as the best example of a region with a gender-diverse Board landscape. What did the Scandinavian countries get right?

From the beginning, the Nordic countries aspired to develop their governance guidelines in line with global best practice. They incorporated a multi-stakeholder approach that goes far beyond just profitability. By including and holding different interest groups accountable, the issue was raised to a social level and discussed in a much more holistic way. In the case of Norway, the argument has been made that gender-diverse Boards are important for the country and for businesses alike. Using only half of the available talent pool put the country at a competitive disadvantage globally. If a Norwegian company wants to have access to its stock market, it has to make use of the entire talent pool, and this must be reflected at Board level.

Mandatory quotas are one measure used by Nordic countries to increase gender diversity. What are the arguments for and against setting gender diversity quotas for Boards, and whether those quotas should be mandatory?

I think voluntary quotas or targets are preferable as a first step to drive change, reverting to mandatory quotas if progress is insufficient. Norway actually did not strictly enforce their law regarding Board composition from the beginning but encouraged companies to comply voluntarily. Two years later, as there was little progress, the law was implemented. In a very short period of time, the Norwegian Boards of listed companies raised their Board diversity levels up to 40%. The main downside we could observe was the phenomena of “Over-Boarding”. Due to the rapid change, women were serving on many Boards in parallel and sometimes took on a little too much. However, a number of studies concluded that the consequences people feared, e.g. that companies will underperform or that female executives are not experienced enough, proved to be unwarranted.

What career advice would you share with female executives who aspire to Board positions?

Female executives first of all need to build executive experience, internationally, if possible. There is no substitute for having P&L roles and building an expertise base. Secondly, they need to question and understand their own motives for seeking Board work, and they need to be able to articulate them. It is very important for female executives to develop a broader network and actively promote their capabilities in the wider marketplace. This involves joining groups and events that may be predominantly male, and engaging in discussions with men in which they need to be able to clearly point out their accomplishments and ambitions – a rather atypical behaviour for women, which they nevertheless need to adapt in order to make significant impact in predominantly male businesses.

So far, we have talked mainly about gender diversity. Is this focus on gender warranted or should Boards be thinking in a broader, more holistic way?

In my opinion, we need to place the focus on gender balance. Females are a fundamental aspect of diversity, and they are underrepresented. By focusing on bringing more women to the Board, other types of diversity come with it: diversity of thought, mindset, experience, style, etc. However, Board recruitment always has to be driven by the needs of the Board. It is essential that companies do not approach Board diversification as a compliance exercise, but as an attempt to hire the best person for the job – which happens to be female. At the same time, we need to be aware of the need for ethnicity and nationalities on our Boards – again, not because of political correctness, but because the Board should reflect the business. If you have global operations, you need to have certain expertise with respect to your key geographies. This will increase the company’s opportunity for impact in that part of the business.

We are living in times described as Volatile, Uncertain, Complex and Ambiguous (VUCA). The speed of change and the pressure for success is ever increasing. How can Boards keep up, adapt and stay relevant?

In a highly volatile environment, leadership is best exercised through vision and values, instead of elaborate strategic plans. We need to continuously question the assumptions we make and be willing to change our plans if warranted. Uncertainty and complexity require executives and Board members to connect very deeply to multiple levels in the organisation in order to take cross-functional decisions that are in service to the entire business. Finally, ambiguity is an invitation to drive innovation and break new ground. Boards need to recruit members who bring this deep expertise and are capable of operating across the business. They need team players who are fully engaged in the business, ready to lead a deep and meaningful debate. So far, I do not feel like companies are doing enough to address the challenges of a VUCA environment. Many Boards are too far removed from their business, where members are focused on their own “silos” of responsibility and expertise. When a serious challenge hits, these fault lines are very much exposed.

How do you ensure the right mix and chemistry, bringing together the best blend of backgrounds, expertise, perspectives and personalities?

First, you need to be very clear about the specific skills and knowledge that every Board member needs to bring in. That includes eliminating the extraneous criteria that may not have a significant impact, like being a former CEO – this is almost a non-criteria for me, since so many other executives demonstrate that they have gained a holistic view of the business during their career. You also need to define the role the future member will have on the Board. It might make sense for a female Board member to take on the role on the Nominations Committee, if you are trying to expand your scope of recruitment. Then you need to consider demographic data, diversity elements like age, gender, race, nationality etc., to be able to represent all parts of your business. Look at the automobile industry: It took some companies a long time to understand that women are a very important part of the decision-making process when it comes to buying a car. If they had engaged with female Board members with marketing acumen and an understanding of buyer behaviour, they never would have overlooked the role and influence of women in automobile purchasing. Prioritising your diversity needs alongside your business requirements will help to create focus and drive results. In the end, it is a talent question, not a gender question.

What are the necessary ground rules for a diverse Board to work together in a dynamic and highly effective way?

Research concludes that a great level of trust is essential for engaging in open debates and speaking one’s mind. If a Board member does not participate in the decision-making, he or she will naturally have reservations and will not be committed to the decision. That again reduces accountability and ultimately has a negative impact on the results. In order to create an environment in which conflict of ideas is encouraged, it is essential to develop a team Charter or common understanding that captures the mission, guideline and expectations for the team culture and team member contributions. The most important influence however is the behaviour and interaction of the Chairperson, who needs to continuously question their own mission and performance in order to build a team that is striving to improve, reflect and incorporate everyone’s ideas. A Board needs to have clear criteria for its own performance and the performance of its members and needs to regularly assess itself against these expectations.

How should that Board assessment best be done?

There is no “one size fits all” way to monitor and assess Board performance. It is important that Boards develop their own self-monitoring mechanisms for group and individual performance. That can be done with or without the help of an external advisor. For individual performance, I would always recommend a self-evaluation based on conversations with the Chair and the other Board members. The Chair then has to confirm and augment this self-evaluation and point out potential blind spots. It is amazing how many Boards have not installed a structured evaluation process because it may be perceived as somewhat negative, heavy and almost compliance-driven. But the purpose is rather to seed a culture of continuous improvement in order to become a more effective Board member and a more effective Board.

Do you have a last piece of advice on the diversity topic for Chairpersons and CEOs reading this interview?

Approach gender diversity as an opportunity to improve Board performance and to create significant additional business value – and not as an exercise in political correctness. No one else can have as significant an impact as the Chairperson and the CEO in evolving the attitude and mindset in the company to one that embraces and understands top team diversity. This is key. I have spoken with a number of Board members and Chairs who initially were very sceptical about gender diversity on their Boards. After experiencing the opportunities and impacts that a diverse Board provides, they embrace it. If all CEOs realise the benefits of a diverse team, we will not need quotas.

Michael, thank you for these insights!

Dr. Michael Hathorn is an Affiliate Professor at Arizona State University and the Thunderbird School of Global Management. In addition, he is a Partner in the area of Board Development at the International Center for Corporate Governance and teaches Leadership-Governance in the DAS program on Sustainable Business – a joint program of the University of St. Gallen and Business School Lausanne.

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New Consultant in Bogotá

In February, Eleonora Cajiao Cabrera joined our Bogotá office. Eleonora is a Colombian qualified lawyer and a UC Berkeley trained expert in International Business. She previously worked for Unilever in various senior management positions in the Andean Region and led several international expansions before becoming active in the field of Executive Search and Human Talent Advisory. As Senior Client Partner in the Bogotá office of the global consulting firm Korn Ferry, she oversaw the Consumer Goods, Big Pharma, Government and Industrial practices for the Andean, Central American and Caribbean regions. Eleonora combines almost 30 years of leadership experience in talent consulting (search, selection, and professional development) leading companies from various industries.

Panel Discussion on “Diversity on Boards” in Geneva

In cooperation with Berenberg Bank, our Geneva office organised a panel discussion entitled “Board Walk: Where are the Women? Upgrading Boardrooms with Dynamism and Diversity”. Our consultants Carolyn Lutz and Nick Harris moderated a discussion with an expert panel: Regi Aalstad and Pauline Lindwall, two internationally experienced female Non-Executive Directors, and Dr. Michael Hathorn, Professor at the Business School Lausanne and a specialist in Board diversity (who also made himself available for an interview for this issue of the TTA). Together with numerous participants, they discussed how companies can make better use of the full talent spectrum and improve Board performance.

News from our Latin American practice

Christian Bühring-Uhle, in charge of leading and developing our Latin American practice, was named “Mentor of the Month” by Endeavor Colombia in March, a leading movement for high-impact entrepreneurship around the world. In addition, Christian was also honoured by the German Colombian Chamber of Commerce end of March for his three years of service on the Board.


The critical role played by ownership strategy

Benefits of active and responsible ownership
by Andreas von Specht and Nick Harris

Why good ownership matters

More than 80% of all global Family Businesses (FB), representing USD 1.6 trillion in assets, will seek to transfer to new owner generations in the next decade. 60% of FB owners are over 50 years old and one-third of those plan to retire within the next five years. Half of all FB owners claim that their business is heavily or even completely dependent on them and two-thirds of all owners have not yet organised their own succession. Think about these amazing statistics and add to them the learning that only 30% of businesses with family ownership manage to survive the 2nd generation, and that just a tiny fraction (3%) still exist in the 4th generation or beyond. If active and successful ownership entails founding, growing, preserving – but then also successfully transferring ownership to the next generation – many entrepreneurs risk failing in their mission.

Only 20% of discontinued family ownerships are due to well-planned and prepared divestments such as Management Buyouts. The main reasons for unsuccessful FB transfers are a lack of trust and communication issues among family shareholders – often accompanied by underlying or even openly hostile conflicts. Frequently, the next generation is insufficiently prepared to take over responsibility as shareholders, let alone as managers. Interestingly, (inheritance) tax issues are not among the main reasons for unsuccessful successions. Truly great entrepreneurs demonstrate that they can both develop a business and manage its transfer to the next generation; both imply thorough and careful planning, but the latter also includes the ability to “let go”.

Succession and the transfer of control is of course not the only challenging situation for owners. They are often confronted with other exacting family situations – the cousin who is in need of money and wishes to sell, the brother who wants his son to be elevated into a senior leadership role, or the sister who wishes to be represented by her lawyer on the Supervisory Board. From an owner’s perspective, some of these challenges may bring with them an opportunity to make a desired change or optimisation, but more often they are perceived as an unwelcome disruption and potential risk.

If these situations are managed with diligence, care and emotional intelligence, FB owners can fully benefit from the advantages that a FB clearly has in comparison to other organisations, e.g. long-term thinking, strong values, etc. But if they are ignored or badly managed, then both the business and the family can suffer badly. Emotion, money and control are the ingredients of a potentially lethal cocktail.

Succession management as the tipping point of good ownership

With ownership comes both privileges and responsibilities. Entrepreneurs need a special skill-set to guide a FB through challenging times. Courage, decisiveness, strategic oversight and, crucially, a combination of IQ and EQ are essential. Functional management skills and market knowledge also do not do any harm, of course. Last but not least, there is the requirement to manage not just a commercial organisation but also a family closely intertwined and related to this business. This can add significantly to the complexity. In our interview (third article of this edition of The Trusted Advisor), Andreas Jacobs talks about the “three dimensional” leadership of a family: horizontally, as a balancing-act between siblings; vertically between generations and the today and tomorrow. On top of that comes the family-leader role, which requires the foresight and independence to know when to let go – and to whom to hand over the torch.

Succession as such comprises two different levels that should be clearly differentiated: the succession of ownership and the succession of management. Both questions, i.e. who is entitled to own and who is entitled to manage the business, are at the core of the development of a Family Business Strategy – the family governance framework needed to give good ownership a professional structure.

The main elements of an ownership strategy

Less than 30% of all FB globally have already developed a specific Family Charter, or Constitution, which is the final output of a Family Business Strategy development. However, it is not the final document itself that is decisive. More important is the discussion process and journey that leads to its definition. Owning families increasingly understand the significance of such a process, which is normally moderated by an external facilitator. They wish to strengthen their family identity and legacy, foster harmony and secure stability within the family. Unlike a Shareholder Agreement, a Family Charter is not a legally binding document, but it defines and strengthens the DNA of a family and of their business. It thus becomes a morally binding document for the owning family and, over time, it turns into a crucial success factor. In our experience, families with such a Charter are more respectful of their own rules and governance structures, and this produces better leadership as well as more effective “checks and balances”.

During workshops with the owning families, we try to ask far-reaching questions, such as: “To whom does your business belong – and who exactly is considered family?”, “What happens in cases of conflict?” and “Can family shareholders sell their shares – and if yes, to whom?” And then there are, of course, important questions regarding “roles” in the FB, especially when it comes to leadership: “Who decides – and how – who will be entitled to manage the FB?”, “Can family members apply for leadership roles if they meet certain qualifications, and are there even certain roles ‘reserved’ for them?”, “Is it actually desired that next generations should grow into executive roles, or should they be excluded altogether from operational involvement?”.

These are hugely important questions, which often require a considered thought process and intense discussions among family shareholders before arriving at a satisfactory conclusion. They touch upon all aspects of ownership including the Family’s wealth management, inheritance, the legal structure of the FB, dividend policy and the implementation of a Supervisory Board.

The “Family Business Spirit” and good governance

In well governed and successfully run FB you find what we describe as a special “Family Business Spirit”: the company culture is strongly influenced by the owning family and determined by a mix of ethical beliefs, strong values and a modus operandi (including clearly defined do’s and don’ts) to which both the owners and the management subscribe. This often includes a long-term orientation, flat hierarchy, fast decision-making and also e.g. loyalty of staff. A family business can turn these positive aspects into a huge competitive advantage.

The Family Charter contains the guiding principles for good family governance. This can function as a disciplinary frame for the owning family itself – but it will also be carefully observed by other stakeholders outside the family. This will be explored in further detail in our second article “Do’s and don’ts of successful company ownership” by Christian Bühring-Uhle.

Do’s and don’ts of successful company ownership

How to achieve the right impact as a company owner
by Christian Bühring-Uhle

“Dalle stalle alle stelle alle stalle” (from the stables to the stars and back to the stables) is how the Italians paraphrase the phenomenon known all over the world that very few family enterprises last beyond the 3rd generation.

The sustainability of a business enterprise depends on many factors. Perhaps the most important one is the exercise of good ownership practices. This is crucial because many other significant factors, like competent leadership, financial solidity, a viable strategy etc. all depend on the owner(s) exercising their role – which is composed of rights AND duties – in an effective and professional manner.

Founders and sole entrepreneurs are often intuitively conscious of this necessity, although for them, the roles of owner and operator are not – and do not have to be – separated. However, when ownership is shared by a group of partners, or is handed down from entrepreneurs to their successors (typically the following generations of the founder’s family), the necessity arises to separate the roles of operational day-to-day management and ownership. Many co-owners are not aware of this distinction and perceive their involvement in the business as either “in” or “out”. Consequently, they hand excessive influence as well as burdens to those co-owners who actually work in the business, while neglecting the ownership rights – and duties – of those who don’t. This puts a large premium on the role of those who work in the company, and creates significant pressures on members of entrepreneurial families to get actively involved in the operational business as well, even if that does not correspond with these individuals’ vocations and abilities. There is no “entrepreneurial gene” that is biologically inherited. The result can be seen in many family enterprises that are run by moderately capable, or outright mediocre leaders, one of the main reasons why so few companies reach, let alone survive, the third generation. The key to avoiding this is to neatly separate the roles of owner and operator, and to realize that while the role of the operator can be “outsourced” to hired managers, the owner cannot escape from his or her rights and duties (unless the ownership is transferred). This may be counterintuitive to many members of ownership groups, especially entrepreneurial families, but the important and truly essential role is not the managerial one “running” the business but that of the owner who may be “outside” but may never be passive.

It is “the owner”, and that is in many cases a rather heterogeneous group of collective owners, who:

  • Defines – and “lives” – the fundamental values of the organisation.
  • Defines the mission or “raison d’être”, the fundamental strategic objectives and the general future path of the company.
  • Selects and installs the operational leadership (which includes the difficult task of attracting, hiring and retaining top leadership talent, be it “internal” or “external”).
  • Supervises the operational leadership (which includes inspiring, challenging, coaching, incentivising and evaluating top leaders).
  • Takes critical decisions affecting the financial solidity of the business (deciding on profit distribution, profit retention or capital increases, i.e. determining when and to what extent to “take money out of, or put money into the company”).
  • Decides on the structure and changes to the structure (i.e. governance structures, mergers & acquisitions, fundamental investments and divestments).
  • Establishes the fundamental processes by which the above issues and tasks are continuously revised and evolved.

So how can you meet this challenging task? The first step is to create awareness among the owners of the significance and magnitude of this task. Then there should be a thorough discussion and an attempt to reach a common understanding on the fundamental questions mentioned above, an agreement that needs to be sufficiently documented, e.g. in a family “constitution” or “protocol”.

Reaching such an agreement requires an honest discussion and a joint decision on which of these tasks can and should be executed by the owners collectively, with or without some sort of professional assistance; which tasks would better be delegated to individual members of the ownership group; and which tasks can or should be delegated to outside professionals. Once the number of co-owners has reached a certain magnitude (this can start with as few as three co-owners if at least one of them manages the company on a day-to-day basis), it is typically recommendable to create a standing committee that executes a large number of the tasks listed above and leaves only the most fundamental decisions to a plenary assembly of co-owners. This is, of course, the structure that public companies have by law, with a Board of Directors as standing committee and a General Meeting of Shareholders as plenary assembly, and that many larger private companies have adopted for practical reasons because such a two-level professional governance system simply makes sense. There are many variations of this structure, but the general two-level set up can be regarded as a universal standard.

The central element of this governance structure is the Board, which in a private company can also be an Advisory Board and which can be composed entirely of co-owners, entirely of outside directors, or a mixture of both. The key is to have capable, independently minded members, an experienced and empowered Chair Person, and the right set of procedures and practices that make sure that the Board deals with the right set of issues, at the right level of detail, in a timely and reasoned manner.

Good governance is not only important in order to protect the fundamental interest of the owner to preserve and grow the value of the business and guarantee its sustainability. A capable Board, or comparable standing committee that helps exercise the owner’s role in a professional manner, is also a fundamental need from the perspective of the executives entrusted with the day-to-day management of the company. Regardless of whether they are “insiders” or “outsiders”, operational managers need a “functioning owner” in order to obtain timely and reasonable decisions on issues that go beyond the scope of day to day management, e.g. large investments or divestments, mergers or acquisitions, etc. In addition, they also need a “functioning boss”: someone who guides them, challenges them, gives feedback and takes the decisions that affect the executive´s contractual situation, ensuring fair and fact-based treatment.

Capable executives, who can choose between different job opportunities, will pay attention to these structures and will not “invest” their professional capital in companies that do not have an adequate governance in place. In a European study of Family Business conducted together with EY in 2016, AvS – International Trusted Advisors found that external top executives study the corporate governance of FB’s very carefully when deciding whether or not to join. Moreover, their long-term commitment correlates with the degree of professionalism of the governance structure. The more a manager fears that he/she has to depend on the goodwill and stability of a single family shareholder, the higher they perceive the risk. Excellence in governance, with clearly defined rules and ways of behaving, enables FB’s to attract and retain exceptional leaders!

That, by the way, is also the case with younger generation family members who pursue executive or entrepreneurial careers: a recent study among students belonging to entrepreneurial families revealed that less than a quarter of them intends to pursue a career in the family enterprise. The war for talent is getting increasingly tough, and professional governance structures are a must for any company that wants to attract top talent, including from within the “family talent pool”.

And what are the “don’ts”? Insufficient ownership structures can be identified by one or more of the following traits:

  • Handling key issues in an unstructured process driven by emotional and “ego” considerations.
  • Failing to discuss and choose among well thought out alternatives on fundamental issues.
  • “Board” structures composed of family members and “family friends” chosen for loyalty / emotional attachment rather than for relevant experience and competencies, thus making it hard to discuss “difficult” topics and to challenge the status quo.
  • Absence of a Board leader who structures the process, moderates and focuses the discussions, makes sure “painful” issues are being processed and serves as a “bridge” and “sparring partner” for co-owners and managers, especially the chief executive.
  • Absence of a feedback process among Board members or, even better, periodically and professionally conducted Board performance evaluation.
  • Mediocre management composed of family members and long-standing loyal employees, having advanced though the ranks basically “because they were there”, resulting in the pattern known as the “Peter Principle” whereby managers are selected based on their past, rather than on abilities relevant to the future role, so they rise in the hierarchy through promotion until they reach the level of their respective incompetence.
  • Perceived nepotism demotivating non-family managers, preventing the hiring and retention of top talent.

Taking to heart these do’s and don’ts can help business owners a long way towards creating value and sustainability.

Handing over the business to the next generation

An Interview with Dr. Andreas Jacobs, Member of the Supervisory Board of Jacobs Holding AG
by Carolyn Lutz and Felix B. Waldeier

AvS – International Trusted Advisors: There are many ways in which a company can be successfully transferred across several generations – and also many risks. From your point of view, what are the crucial aspects that owners of family businesses must take into consideration?Dr. Andreas Jacobs: Being an entrepreneur is not easy. You need to be courageous, skilful in dealing with people, and have the right education and experience for the job at hand. In a family business, dealing with the family is the top priority; that poses a further challenge in three dimensions. First, there must be a horizontal balance, that is, between the siblings of the entrepreneurial family. Second, there must be a vertical balance between the generations; the allocation and distribution between today and tomorrow. Third, there must be a farsighted leader who knows when to hand over the business and to whom – and in which kind of structure he/she leaves the company and the family.

How did this generational change take place in your company?

After building Jacobs Suchard into the third largest coffee company in Europe, in 1987, my father had bought out his three brothers and sisters who held largely equal rights in the family company. For this he indebted himself, while at the same time pursuing a globalisation of the company. This led to having to sell Jacobs Suchard in 1990 for financial reasons. Thus, there was also no successful transition from the second to the third generation. In the end, everyone received a nice pay-out but the distinguishing characteristics of a family business – bringing together family members across generations, setting aside the individual interests in favour of those of the company, moving even closer together in bad times – were suddenly gone.

Could, in your opinion and in retrospect, the loss of the company and accompanying loss of family cohesion have been avoided?

My father was too strong a personality to let his siblings with almost equal rights have an agenda different from his own. The voting rights should have been distributed differently in order to improve the culture of the majority, including veto rights and a strong role of independent third parties. Instead, 100 years of Jacobs coffee as a family business came to an abrupt end.

Against this background, how did you proceed on a corporate level – or in other words, how did you succeed with a fresh start?

One of the new / old roots was the industrial chocolate business Callebaut, which the buyer, Philip Morris, did not want at the time. This has now become a small star, which has increased its production volume from 50,000 tons of chocolate per year to almost 2 million tons today. I was able to accompany the company for over 10 years as President, and I take pride in the fact that the stock price of the company – we are listed on the stock market, and hold a good 65% of the shares – has increased by eight times since then.

Barry Callebaut went public in 1996. Is listing a family business not correlated to the risk of losing the long-term entrepreneurial view through short-term satisfaction of shareholders? How did you manage to reconcile these two forces?

Combining a dominating or a majority participation of the family with an exchange listing is not only possible, to me it represents even “the best of all worlds”. There are three main reasons for this:

The exchange listing forces us to have “state-of-the-art” reporting, controlling, compliance and governance. So I do not have to play judge and jury, but the company receives its stimulus directly from the stock market.

Furthermore, the stock market listing forces us to achieve sustainable financial performance. Sustained because the CEO ensures that the stock market price increases by improving the performance quarter by quarter. At the same time, as President, I ensured that in three years, six years or ten years, we achieved our long-term goals resulting from the right strategy and the right team.

Finally, the stock market listing facilitates the procurement of cash: capital, mezzanine, bonds and bank loans can be procured much more easily and quickly if the company has a regular rating or at least good coverage by the financial analysts.

From an economic point of view, this sounds reasonable. But what advantage do the family members have from listing their company?

For family members, too, an exchange listing is advantageous. It offers the individual members initially greater fungibility and management of their own portfolio, by enabling the selling and buying of shares on the stock exchange. In addition, it requires a stable dividend policy and thus disciplines the family shareholders not to squeeze out nor to plough back too much cash.

Can an exchange listing pose an advantage for external managers in the company?

Absolutely! It allows for a more attractive “Management Compensation Programme”, which today is essential for attracting and retaining good managers. In our companies, the top ten managers earn 50% of their salary through the equity participation programme. At the same time, however, it is just as important that a stock exchange listing allows a neutral performance assessment by the management.

You and your family are investing in different companies in different industries. Did this holding structure result from the perception of opportunities or was a corresponding investment strategy already planned for a long time? How do you take decisions?

Already some twenty years ago, my father began to divide his assets. Half went to his heirs, his wife and us children, and the other half to a family holding company. This holding company invests any excess into a foundation. While the heirs can now individually dispose of their assets, they decide jointly at the holding company and the foundation – but only on two things. On the one hand, on the appointment of the Board of Directors of the holding company and of the Board of Trustees. And on the other hand, on a possible distribution of the holding company to the Foundation. All other decisions are taken exclusively by the bodies of the companies or the Foundation.

What about the operational influence of family members? Not every family member wants to work in his or her own company – others are interested, but they cannot cope with the entrepreneurial challenges…

Naturally, we try to fill the key positions in the individual companies with family members. My brother Christian, for example, directed the Jacobs Foundation for a long time before he handed over the office to our sister Lavinia some time ago – while my successors in the presidency of Jacobs Holding are my two brothers Philippe and Nicolas. We were obviously successful in transferring the responsibilities within the family. Nevertheless, we are keen to ensure that we have mainly independent and professional people in these committees, in order to make sure that family politics and possible frictions and rivalries are not taken into the committees.

Looking at the holding of positions as well as the voting rights, we could still question the rationale behind your commitment to the holding company in combination with your investments in Barry Callebaut. Successful profits ultimately end up in the Jacobs Foundation – and not directly with you. Isn’t that demotivating?

This is a good and important question! It follows the rational that capital and voting rights should always be kept together. In other words: “If one cannot reap the fruits of his/her own actions, one loses interest, works as an employee, and the passion for the family enterprise is lost.” This is a possible danger that many advisors warned us about. Nevertheless, we have deliberately chosen this structure for the following two reasons:

With one half of the inherited wealth, each one of us received enough to live. With the introduction of the other half into a holding and foundation devoted to the common good, the family will be charitably committed and dedicated to society for generations.

Our holding company, our foundation and many foundation projects carry our name. It is hardly conceivable for me that we are no longer interested in these institutions, which bear our name. Take, for example, the Jacobs University in Bremen: when my father decided to name it after our family, it was clear to all of us that we will be supporting it as long as we have the means to do so.

But does this structure also enable future generations to engage in the operational business and the foundation?

As long as my or our offspring want to be entrepreneurial and have a corresponding professional training, they will have the opportunity to develop themselves entrepreneurially and to contribute to the company or the Foundation. As for many family businesses, the core question remains: will the following generation develop enough enthusiasm in order to become entrepreneurial themselves? Every descendant must answer this question for him or herself. From my point of view, the answer is very rarely connected to the amount of money or size of the company. Entrepreneurship does not necessarily require much money, nor does a lot of money automatically lead to entrepreneurship. Therefore, we did not have a problem with the separation of voting rights and capital, and believe that the family will continue to be engaged in entrepreneurial activity.

How do you want to ensure that this will work as smoothly as possible in the future, also when very fundamental decisions have to be taken? Do you have a clear “family governance” model?

Our entrepreneurial family consists of six tribes, who, as already mentioned, decide in a Family Council on the appointment of the Board of the holding and the Foundation, as well as on a possible dividend of the holding company to the Foundation. All other decisions are made in the bodies and management of the companies. There is a clear distinction between confidentiality and the right to speak between family councils and societies. My two sisters and my older brother Christian are not involved in the Board of Directors of the Holding, which is why they receive less information about our portfolio companies. This asymmetry of course only works as long as and to the extent that they have confidence that those who are responsible for the company work well and also in their interest. It is therefore essential to maintain an informal, personal and trusting communication culture outside the Family Council and outside the committees. Luckily, we were doing that successfully even after the death of my father nine years ago.

Based on your specific structure and the interaction between family and company, can you formulate general advice on how future generations should be prepared for their role?

A family business lives from the family – in present and future generations. Accordingly, it is essential to promote the next generation in the best possible way. It is important to take into account that not all descendants can be educated to be entrepreneurs in family businesses – there is no “entrepreneurial gene” or an entrepreneurship course to be taken! The only thing we can do is to create an environment for them which transports the appropriate values and creates role models, so that they can enjoy freedom and still learn to deal with it in a responsible way.

Andreas, thank you for these insights!

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New consultants and new office in London

As of January 2018, AvS – International Trusted Advisors will expand its presence and open its own office in London. We have established a very close cooperation with Anthony Harling, who together with his partner Jim Burley leads the consulting firm Archer Mann. Anthony Harling has over 25 years’ experience in international executive search firms, including as a Partner with Heidrick & Struggles and with Eric Salmon & Partners. After a period of close cooperation, Archer Mann is expected to integrate into AvS – International Trusted Advisors UK Ltd. in 2019.

Panel Discussion on “Diversity on Boards” in Geneva

In cooperation with Berenberg Bank, our Geneva Office is organising a panel discussion entitled “Board Walk: Where are the Women? Upgrading Boardrooms with Dynamism and Diversity“. On Thursday November 16 2017, our consultants Carolyn Lutz and Nick Harris welcome the panel participants in the Hotel d’Angleterre in Geneva. Together with Regi Aalstad and Pauline Lindwall, two internationally experienced female Non-Executive Directors, and Dr. Michael Harthorn, Professor at the Business School Lausanne and a specialist in board diversity, we will discuss how companies can make better use of the full talent spectrum and raise Board performance.

Interview with Andreas von Specht in “Tharawat Magazine”

A comprehensive Interview with Andreas von Specht on “Challenges and Opportunities of Integrating Non-Family Executives in the Family Business” was published in the Dubai-based journal for (family) companies “Tharawat”. Amongst other things, Andreas spoke about the importance of a successful integration process for the long-term success of external manager in family businesses. The Interview is available as a PDF and Podcast.

Dr. Christian Bühring-Uhle talks in front of CFOs from family businesses

On March 31 2017, Dr. Christian Bühring-Uhle spoke at the St. Galler Finance Forum in front of numerous CFOs of major family businesses from the DACH Region. The topic of the interactive event was “Negotiating as a management tool of the CFO”. Based on his long experience as an author and coach in the art of negotiation, as well as his own experience as a CEO and “acting CFO”, Christian highlighted the parallels between leading and negotiating. Together with the participants, and based on the “quadrangle of key factors” and the “negotiating dilemma”, he discussed the key criteria for understanding and successfully handling any negotiating situation.

Andreas von Specht at the “EY Global Family Business Summit” in Monte Carlo

In June 2017, Andreas von Specht participated at the “EY Global Family Business Summit” in Monaco. In front of delegates from family businesses around the world, he moderated a panel discussion on “When genes are not enough: how to attract, retain and nurture top non-family management”. Member of the panel included Guido Vanherpe, Managing Director of the third generation Belgian La Lorraine Bakery Group, Charly Kittredge, head of the sixth generation US Company Crane & Co., and Dr. Mohsen Sohi, the second external and first non-German CEO of the Freudenberg Group. Together, they discussed the value external managers can add to family businesses and how to ensure their successful integration.

Relocation of the Hamburg Office

After many years based in Gorch-Fock-Wall, our office in Hamburg has recently moved to a new location. From now on, you can find us, again in a central location, in Neuer Wall 80, close to the town hall.


Being a force for change

An interview with Frits van Paasschen, author of “The Disruptors’ Feast”
by Andreas von Specht

Andreas von Specht: Disruption is everywhere and it is often start-ups or industry outsiders who challenge the establishment with new ideas. What is your advice for company leaders who are suddenly faced with these ever faster changes?

Frits van Paasschen: Many senior executives who have been successfully managing businesses over the past few decades are finding that the requirements for success have changed significantly – for themselves and for their organisation. I would primarily advise them to be the guiding light for the company by creating a global mind-set, understanding what is happening outside the company and translating that into necessary changes. Especially public companies are too focused on KPIs, hitting quarterly earnings and meeting the parameters of success that have been defined. As a result, it is very easy to miss the forest for the trees. CEOs and leaders constantly need to ask themselves: are the measures that define the success of our company still relevant, or are we optimising ourselves for a world that is increasingly obsolete? That is why the outside perspective is so important – not just with regard to technology, but also to other cultures and markets around the world.

How do you best obtain that outside perspective?

By installing an advisory board of “Millennials”, for example, consisting of people from both within and outside the organisation. Or by having conversations and close relationships with venture capitalists who know a lot about the start-up businesses that could become relevant. “Hackathons” can also be quite successful – putting together a contest among teams to come up with new digital solutions within a 24-hour period of time. These are all very useful ways to get an outside perspective and create a different way of thinking.

You obtained that outside perspective by e.g. relocating the corporate HQ of the hotel group Starwood to China and Dubai for a certain time. How did you sell that idea to your staff?

By asking them if there was any reason why we should not do it. That was the beginning of a real dialogue around creating a global mind-set and understanding that instead of enforcing structures from the centre, we needed to serve our regional executives if we wanted to be successful in new markets.

Being successful in new markets to some extent also depends on political developments – some of which seem to go rather backwards today.

Many recent political results – for example the US presidential election or Brexit – were surprising and troubling to us. But we should learn to expect to be surprised when complicated systems are changing rapidly. The rise of populism that we’ve seen in many European countries in the last year is another example. And that is actually very much connected with the topic of disruption: the driving force behind it is an increasing number of disenfranchised voters, whose jobs and livelihoods are either being threatened or taken away by globalisation and the spread of technology.

Are there people at the losing end of a rapidly changing global economy?

There are always winners and losers in times of change and disruption. The competitive environment for labour has become a global one, jobs can easily be moved somewhere else. And the pace of change by far exceeds the capacity of labour forces to retrain and redeploy. Unfortunately, people have a strong tendency to look for someone to blame, and it is much easier to blame somebody on the other side of the border than to look at your own nation or your own lack of relevant skills for a changing marketplace.

Have these changes in the global supply of labour led to a new “war for talent” among employers?

I think the “war for talent” has existed for some time, but it is only intensified by what is happening. Across every industry, companies are looking for people who are digitally savvy, understand social media and are able to integrate technology into existing ways of doing business. Having a global perspective and seeing across functions has become more important in today’s strongly connected world. Traditionally, companies used to recruit people with specific skills or a specific industry background. Today, companies are increasingly looking for the same kind of people that incorporate the above mentioned skills.

What would organisations need to do differently today in order to successfully seek top talent around the world?

In the past, companies spent more time recruiting talent to where they were located. Now they have to see talent as a resource that has localisation: they have to look at dynamic cities, places that are hot-beds for the creative class – places where people with the type of profile described above are much more likely to be found. Those locations – whether that is in Brooklyn, Berlin, London or Amsterdam – need to be used to recruit and retain people who live in an environment where they feel comfortable.

How do top executive search firms around the world have to adapt to these changes in order to stay relevant for their clients?

With the emergence of LinkedIn and other networks, the executive search business is experiencing its own form of digital disruption. With these advancing abilities to recruit, more and more companies are moving in-house with their talent management. But many companies are still defining the profile of their new senior executives narrowly and in traditional terms – and often not realizing that their need for new personnel might result from the need for different skills. As an advisor, you have to challenge the ideas of your clients and draw their attention to these new needs. Senior executives might be from outside the industry, but they might be the right person for the job if they are able to ask uncomfortable questions that prepare the company for a disruptive future, like: What do you believe are the biggest threats to your company today? What do you think digital disruption will look like? How do you plan on coping with that? How is your team set up to lead change? Do you have someone who can be an advocate for making changes that go from central planning and skilled manufacturing to personalisation and consumer dialogue?

Many of our clients are family-owned companies. Are they facing the same challenges as public companies in disruptive times?

Successful organisations have to be able to understand as quickly as possible what is changing – and be a force for change, not only reacting to what is happening. In comparison to family companies, public companies are much more responsive to an investor community, strongly focused on short-term earnings and therefore sometimes blind for the nuances of change. The dynamic in family companies can cut both ways: focusing on tradition and continuity can be a barrier for change, but it can also be a way of staying focused on stewardship and sustainability in the future by investing in long-term capabilities to prevent disruption.

What about the values that are so important for the DNA of a family company – are they still an advantage, or can they become a hindering block?

Values can translate into a sense of mission and purpose for the company. Instead of focusing on a revenue target, the goal embedded in values is to meet a specific consumer need. Thinking about new ways to meet that goal can be a catalyst for innovation and positive change. And for consumers today, it is increasingly important that the values of the company they buy from resonate with their own values. In the transparency of a digitally connected world, companies without a strong moral purpose are more easily outed. Therefore, the right values are perhaps even more an advantage in a changing world, not less.

Frits van Paasschen, thank you very much for your insights!

For further reading: “The Disruptors´ Feast” by Frits van Paasschen, available on Amazon.

Adapting to adversity

How to evolve your leadership style and engage fit-for-purpose executives
by Carolyn Lutz and Nick Harris

Einstein famously said that “education is what remains after one has forgotten what one has learned in school”.

The requirements for success in today’s digital and disrupted business environment are increasingly different to those elements of success which many of the Baby Boomer and Generation X age groups took for granted. Reflecting on the dialogue with Frits van Paasschen, as well as the hundreds of conversations with business owners and leaders we have conducted over the past five years, we offer a collection of checklist ideas on how leaders can remain effective (and grounded) – as well as find their place – amid the apparent chaos.

Alleviate the negative influences and harness the positive effects

  • Embrace the challenge: accept that being a leader will stretch and challenge you, and that you will grow as a result.
  • Overcome your biases: question long-held assumptions, get the facts, seek out new information, get fresh perspectives.
  • Look outside: reach beyond your normal circle of acquaintances, reach across borders and be a citizen of the world; this is a chance to build new partnerships (and perhaps even friendships).
  • Change is natural: understand and accept that your behaviour and viewpoints may change, and that this behavioural shift is a natural response that does not have to be negative.
  • Mindfulness not mindlessness: be mindful of your situation and the world around you, focus on the essentials and prioritise your actions. Don’t succumb to analysis-paralysis; make a decision and move forward.
  • Harness the “power of failure”: recognise that mistakes are inevitable and, rather than regard them as failures, view them as necessary, evolutionary steps along the road to success. Learn and re-learn.
  • “Don’t waste a good crisis”: recognise that challenges are also opportunities (for career steps, personal development, step changes in performance), and change management may be easier to initiate and drive through in bad times than in good.
  • Agility, agility, agility: fast-moving and unpredictable times require different individual and organisational qualities such as the ability to generate new knowledge and codify that learning, to be flexible and adaptable.
  • Mission critical: discover – and communicate – your own personal sense of mission; use it to foster not just a culture of performance but a culture of purpose in your team.
  • Share the burden: “command-and-control” leadership is increasingly unfit for purpose. Consciously strive against a tendency to want to micro-manage; empower your team and practice collective decision-making instead.
  • Complement one another: build teams which are complementary – in terms of diversity of thinking as well as background – not identikit. Break down silos and “not-made-here” thinking. Raise functional leaders (such as the CHRO) onto the ExCom and develop them as true business partners to the commercial managers.

Hire for new skill-sets (but old-school values)

When hiring or promoting, leaders need to assess candidates’ skillsets, experiences and competencies, not just against existing requirements but also evolving trends and future goals. They also need to look deeper at the individual – gauge how they perceive and cope with change, understand their mind-set, uncover their inherent traits and drivers.

  • Character: look for “strength of character”; a good work ethic, determination, grit, resilience (both physical and mental); emotional maturity; and (last but not least) a sense of humour.
  • Values: what are their intrinsic values; from what do they derive purpose; what do they hold true to from their family and upbringing; how do they behave in moments of adversity.
  • Intellectual curiosity: this is a critical determinant of future potential; look for a sincere belief in (lifelong) learning and sharing of knowledge, a willingness to make mistakes as part of an improvement process, an ability to see the big picture and connect the dots.
  • Agility: probe for evidence of adaptability, flexibility, and comfort with ambiguity. Ask what they have done in their career that was truly new, ground-breaking or entrepreneurial.
  • Results orientation: inner drive and a “restlessness for results”; individuals who challenge themselves to do more and do it better.
  • Breadth: assess an individual’s range of experience and diversity of exposure: e.g. digital and traditional channels, mature and developing markets, existing and emerging product categories. Monochrome careers are a red flag.
  • Internationality: interconnected businesses require well connected and networked ´citizens of the world´ who bring internationality of experience, take a global perspective and can demonstrate the ability to leverage geographically dispersed teams.

Find your fit

For senior executives contemplating the next step on their career and development journey, it is also more important than ever to find the right corporate home. When assessing the merits and challenges of joining a new company or business, leaders should seek to understand not just where but also how they will fit into the organisation. Critical questions to pose include:

  • Is there an alignment of mission and values between you and the Board / owner?
  • What is the company ethos and the purpose beyond ‘just’ making money? If the company is a family business, does the next generation share the same sense of purpose?
  • Do they have the necessary long-term thinking – and funding – to support new ventures?
  • Entrepreneurial spirit: what is their appetite for risk? How quickly can they move? How much freedom and autonomy do they give to their managers?
  • Perspectives on change: how are decisions made? How comfortable is the organisation when “sacred cows” are challenged, or existing business processes and models questioned? How have previous change management programmes fared?
  • Will you be given the necessary time (and help) to integrate into, and learn about, the new organisation?
  • What (realistically) are your chances to succeed?
  • Last but not least, what will you learn with this organisation that you wouldn’t learn anywhere else?

And to quote Einstein again: “The important thing is not to stop questioning. Curiosity has its own reason for existing.”

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New Consultant in our Geneva office

Born in California of Swiss parents, Carolyn Lutz grew up in France, Germany, and the UK. Carolyn began her business career in marketing with Procter & Gamble in Geneva and later as Director of International with La Prairie in Zurich. For over 20 years, Carolyn has been active in executive search; in 1998 she was the founding Partner of Heidrick & Struggles’ Geneva office. Afterwards, Carolyn founded and ran her own Geneva based executive search firm. Carolyn has broad experience in international executive search, for both multinationals and family-owned businesses. A particular area of focus is diversity, including board searches and women’s leadership. Carolyn serves on the Geneva Board of the Swiss-American Chamber of Commerce, and is an Advisory Board Member of W.I.N., the Women’s International Networking Forum.

Andreas von Specht at ”EY Global Family Business Summit“ in Monte Carlo

Andreas von Specht has been invited to participate as a Speaker and Presenter of a panel discussion at the “EY Global Entrepreneur of the Year” event on the 7th/8th June 2017 in Monte Carlo. Every year, more than 1,000 entrepreneurs, CEOs and journalists from all over the world participate in this conference.

New edition of the successful book by Dr. Christian Bühring-Uhle

In January, the publishing house C.H. Beck released the second edition of the book “Negotiation Management”, written by Dr. Christian Bühring-Uhle together with his co-authors Horst Eidenmüller of the University of Oxford and Andreas Nelle of the Humboldt University. The book is regarded as the “standard work of negotiation literacy”.

News from our Latin American practice

In its edition of the 17th March 2017, the Colombian economic magazine “Dinero” (the local counterpart to the Financial Times) deals with the professionalization of Supervisory Boards in Colombia. Dr. Christian Bühring-Uhle was interviewed as one of the leading experts in the country on this topic and he was prominently cited with his views on the role of the Chairman of the Supervisory Board. The article (in Spanish) can be found here.


Finding and binding

Competing for external top talents in family businesses
by Andreas von Specht

Research indicates that the number of younger family members willing and interested to take over responsibility in their respective family businesses in the future is currently at a record low. Family businesses will increasingly have to take part in the global “war for talent” to attract the best suited company leaders – and, almost more importantly, to make sure external managers will also stay and perform with the family business over a long period of time. Here is the challenge for both owners and external executives: most of these external top talents will not necessarily come from a family business background. It requires certain skills, competencies and role-model behaviour from both sides to make this marriage a happy one.

Apart from being an advisor on leadership and governance issues to other family businesses, I come from a family business background myself. Our bank in Germany, the Berenberg Bank, goes back to the year 1590. It is hence the oldest bank in Germany – and the 2nd oldest in Europe. Two family branches which have pooled their votes, together with the external general partners still control far more than 50% of the votes. The year 2015, i.e. the 425th year of the bank’s existence, was the most successful year ever. This is the result of a longer phase of significant reinvention and restructuring. The complete and highly successful “renovation” of the bank over the past 10-15 years was predominantly driven by two strong non-family executives. Both were made general partners several years ago and today have significant equity stakes. Even if perhaps different in style to previous generations of private bankers, they were highly successful when it came to reshaping our business model and improving the substance of the bank. And until recently, there was still an active member of the extended family on the board, who carried the family name. The less well known part of the story is this: since 11 years and for the first time in the 426-year history of the bank, no family member is operationally active in the leadership team. The family saw this situation coming and yet we did little to adjust. We didn’t change the slightly outdated shareholder agreement which grants the acting general partners an enormous amount of influence, decision making power and control. As long as our dominant family branch was always represented amongst the general partners, this never seemed a burning issue. It might differ now as the bank and its culture is changing. From today’s perspective it appears rather unlikely that our family business will be run by one of our family members in the foreseeable future. Is that necessarily a bad thing? Probably not – but it depends on the family’s ability to influence and calibrate events as shareholders. One can draw some interesting conclusions and lessons from this family business story. For example: great entrepreneurial genes in a family are not necessarily passed on from one generation to the next. “Good Governance” in a family business is hugely important – to attract external management, but also to protect the family interests. And there are many more.

AvS – International Trusted Advisors and EY, together with a leading university, have just completed a comprehensive study on external managers in family businesses across Europe. When talking to both the family business owners and the external CEOs and CFOs, you understand very quickly that there is a special “Family Business Spirit” in these organisations. Owning families are normally emotionally much attached to their business. The company represents an important aspect of their identity – and is in most cases far more than a financial investment. The “Family Business Spirit” becomes visible in the company culture, in the relationship between family business owner and external management – and in the working environment. Family businesses, even if highly dynamic and innovative, are always long-term oriented. An important, if not the most important objective and challenge for many is to transfer the business to the next generations.

The special “Family Business Spirit” is the bright side of family businesses. If family business owners provide long-term stability, a platform for rapid, independent decision-making, a sense of purpose and strong values – the importance of such positive role-modelling cannot be overestimated. However, this coin also has a flip-side: if family lines and shareholders are involved in underlying or painfully open, unresolved conflicts amongst themselves or with the external management, the risk of departure of external top management increases over-proportionally. Even if there are offspring interested to enter the family’s own business that still doesn’t say anything about their qualifications. What are the required experiences prior to entering the family business – and who will decide if the son or the niece brings the right mix of critical competencies necessary to make it in the top job? If a succession within the family can’t be organised – or if the future entry of a successor from within the family needs to be bridged over several years, external talents come into play.

In many family businesses you can sense some degree of uncertainty as to how an external recruiting process should be managed. They know intuitively that wrong decisions with regard to the hiring of external top executives will become painful and very costly. And yet, because external hiring of the top positions simply does not happen frequently in most family businesses, many seem to get it wrong – especially the first time. The successful “fit” of an external executive in a family business will often be “judged” after only a few weeks or months. If something feels wrong, even before the honeymoon period is over, it often has to do with a lack of deep understanding: how a family business ‘ticks’ and the dos & don’ts in this special environment. Many family businesses are difficult to analyse from the outside; their true performance, for example, is often not published. It is still surprising and sometimes almost shocking, how little some executives appear to research and investigate prior to signing an employment contract about the culture and DNA of a family business – and how this might differ quite dramatically from publicly-owned businesses. However, it can be equally surprising how little effort some owners invest into the hiring process and the careful integration of external talent.

The hopes of external top managers will mostly focus on a stable business platform with long-term, reliable investment horizons and decision–making independent of quarterly results. They expect to find flat hierarchies, few decisions-makers, uncomplicated and non-political ways of communication. And they hope to find the bright side of the “Family Business Spirit” – with a value-based entrepreneurial culture and a strong people orientation. The fears of external executives joining a family business will be around potential hidden agendas among family members, a general lack of transparency and irrational behaviour.

The ideal profile of an external executive for a family business will naturally include the most important critical competencies of such an individual. This is not only a question of previous experience, but defines a certain skill-set and the degree to which an individual displays competence in important areas. For example, the ability to initiate change, to modify a business model or to bring about true customer orientation across a large organisation. Apart from entrepreneurial and social competencies, a competence most critical to success is the ability to function in the specific environment of the family business. This is probably “the” central competency that differentiates between suitable and unsuitable executives for family businesses. It can be spotted by ‘performance based prediction’: what has somebody experienced in the past that allows a forecast for how he or she will function in a special family business culture? And even more importantly: how does he or she do it? In our experience, the majority of external executives don’t fail because of functional shortcomings. We have encountered situations where the functionally strong executive appeared completely taken by surprise when he was “suddenly” asked to leave. Simply because he had missed the subtleties of critical feedback on behaviour – which the owner ensured us he had made so crystal clear. Hired on competency – fired on chemistry and style!

Interestingly enough, compensation does not play the decisive role in attracting external executives. What really does influence the decision of external executives to join and stay in family businesses over a longer period of time, is entrepreneurial freedom. The ability to shape and form, to make educated decisions and to take full responsibility. When our firm is called in to support owners with a critical succession or appointment, almost every single brief touches upon “the search for an ‘entrepreneurial’ manager”. Well, if you seek true entrepreneurs, then you also have to treat them as such – and grant the necessary space and trust to let them flourish! And – at the same time – you will have to put ‘good governance’ in place and carefully check the competencies of your external executives.

External managers: searching for outstanding talents with low egos

An interview with Peter Englisch, Partner and Global Family Business Leader at EY
by Andreas von Specht and Felix B. Waldeier

AvS – International Trusted Advisors: To ensure long term success, family businesses face a growing need to recruit external top managers. What changes and developments in entrepreneurial families are responsible for the fact that a family’s own offspring are often not interested in becoming the company leader?

Peter Englisch: One of our worldwide studies amongst the biggest family businesses in 2015 shows that young people are becoming less and less interested in joining their own family’s business. From my experience, parents should talk to their children at a very early stage about the possibilities of joining the family business. Young people seek clarity and perspective for their own lives and often do not even know what opportunities – also including opportunities for change – the family business has to offer. After all, it is not about pursuing the parents’ path, but also about catering for new trends, technologies and changes in the market. This is where the next generation is needed.

If the offspring decides against joining the family business, it’s usually an external manager that needs to step in. How can business owners determine if an external manager meets the company’s needs? Is there a typical competency profile?

Family businesses, German ones in particular, are often characterized by modesty and restraint – and hence put company interests over personal matters. Family businesses therefore principally look for decent and competent personalities with a strong track record especially in strategy and leadership topics. Or in other words: They are looking for outstanding talents with low egos.

However, there are many “strong egos” especially in large corporations. Are external managers, without prior experience in family businesses, therefore second choice?

No, external managers are not per se second choice. What really matters is to determine the right person to transfer the family’s values and culture into sustainable company growth. This can also be done by external managers and there are many examples of large family businesses whose operations are successfully lead by external managers. When it comes to operations and executive management within a company, competency is king – no matter if it comes from within or from outside the family.

Or, asked the other way around: might external managers even be the better solution when it comes to leading a family business?

Appointing external managers definitely offers advantages. Managers that are not family members will always and only be judged by their qualifications and performance, as well as the way in which they lead the company – and not by their origin or family background. That allows a more objective view and unbiased management of the company – provided that the owning family indicates the long term direction and defines clear competencies.

Why is this of a particular importance in family businesses?

External managers should act within the limits of clearly defined fields of competences. This notably includes and requires a separation of company matters and the personal interests of individual owners. External managers should not therefore become involved in topics such as personal tax or financial investments, nor be compromised with requests for e.g. company cars for non-active family members.

Once an external manager has been successfully appointed, the idea is to retain him/her for the long term. However, this often does not work. What do company owners need to bear in mind in order to avoid an early and unintended exit of the external manager?

An efficient culture of communication with regular and open exchange is crucial to build additional trust. The conversations should take place in a disciplined and coordinated manner to avoid that the external manager constantly has to justify his/her decisions and actions towards family members. In addition, it is extremely important that the family owners sufficiently communicate their values so to successfully introduce the external manager to the characteristics of family businesses.

Are you talking about the much quoted “Family Business Spirit”?

“Family Business Spirit” describes the strong connection between the owning family and the company, as well as the “role model function” that creates a special company culture. Whether the “Family Business Spirit” really exists in the company, and has a positive effect on the workforce, strongly depends on the actual behaviour of the family.

On the other hand, what should external managers bear in mind to ensure that they are accepted by the owning family and to lay the path for successfully leading the business?

To me, it is crucial that an external manager sees himself/herself as part of a bigger “family”. And this requires the identification with the company and the values of the family. Nevertheless, it is important to keep a certain professional distance towards the owners. In a company, roles and expectations are clearly defined, facts and rational choices matter. In the family environment it is also about emotions, appreciation and (sometimes unclear) mutual expectations. This is a difficult terrain for non-family members. Wrong expectations, incorrect behaviour, and a lack of clear competences, as well as the mingling of company matters and private interests of the owning family, are common mistakes when appointing external managers.

That sounds like a demanding and difficult path. Are there even more risks that could lead to failure?

Another risk are objectives that focus too much on short term goals and on financial aspects. Bonus and compensation systems usually reward short term success instead of supporting the long term generation of values and sustainable profits. Long term goals are especially important in family businesses.

Are compensation systems of family companies less attractive, or in other words: do family businesses pay significantly less?

In principle, family companies pay adequately. However, since stock options and other remuneration components usually do not exist, the total compensation can be below that of comparable listed companies. In exchange, statistics show that jobs in family businesses are much safer and that the average family company affiliation is more than three times longer than in similar positions in listed companies.

Besides security of employment, are there other non-monetary components in family businesses that attract external managers?

Company culture, taking over responsibility as well as long term company values and goals are very attractive characteristics of a family business and definitely appealing for external managers. These characteristics are much more present, and lived more intensely, in family businesses than in large public corporations.

Can you point out further differences between publicly listed companies and privately-held family businesses?

The “Shareholder Value” model, still highly praised until a couple of years ago, primarily focuses on increasing the shareholders’ wealth so they won’t invest elsewhere. This means that shareholders are investors looking for the highest returns. A strong shareholder orientation is a typical management style in publicly listed companies. Family businesses, in contrast, focus much more on “Responsible Ownership”. This concept is about much more than short-term financial incentives: it is about creating long term values and actively living the company’s responsibility for employees, customers, suppliers and other stakeholders. This concept obviously differs a lot from the shareholder value approach – and successfully proved itself during the crisis.

Looking at the advantages and disadvantages of family businesses, one could ask: do publicly listed family businesses combine the “best of both worlds” for external managers?

This cannot be said, in general. There are a variety of reasons for family businesses to go public, e.g. access to capital markets to finance growth, introduction of Governance Systems, succession planning or to facilitate the compensation of a withdrawing shareholder. Needless to say, a regulated environment also creates more clarity for external managers. However, the Chair and the control of the Supervisory Board usually stays with a family member.

“Good Governance”: over recent years, Corporate Governance has become more and more important for larger corporations. What role does it play for family businesses?

There is a unique challenge in family businesses: corporate governance systems have to be adjusted to the rules and guidelines agreed within the family. This is often called the “Family Governance” – and it defines the long term goals and values of the family, creates clarity with regard to leadership and control, criteria for employing family members, and for dealing with withdrawing shareholders etc. This not only helps the family, but also the external managers, to understand and respect the reciprocal expectations and fields of responsibility. The subject of Corporate Governance is constantly developing and will be of increasing importance in the future – also for family businesses.

Peter Englisch, thank you very much for your insights!

How the Board ensures Good Governance

What to look for – and what to avoid – in effectively operating Boards
by Dr. Christian Bühring-Uhle

The sustainability of a business depends on its sustained ability to attract capable leadership talent, and that in turn depends in large measure on the quality of its governance. Good governance, therefore, is not only important for its own sake but also as a requirement for attracting – and retaining – top management talent, be it external or internal (the good ones have alternatives…). In our practice as advisors to owners of significant businesses we are often asked what it takes to ensure good governance, and the key really is to have an effectively functioning Board, be it a classical Board of Directors or an Advisory Board which can play an almost equally significant role for the quality of governance in a privately held company.

In order to achieve the desired impact, the Board, in the first place, needs clarity of purpose. The primary purpose of the Board, at least in a privately held enterprise, is to exercise the owners’ rights and obligations (also vis-vis the other stakeholders), and to protect their interests, ensuring that the company is well managed, that fundamental decisions are taken on the basis of good judgment, and at the right moment. A productive and well-functioning Board, however, is also an indispensable resource for management. The best CEOs appreciate – and seek – the advice and challenge of critical, independent-minded Board members and especially an experienced Chairperson as sparring partner. Another function of the Board, and especially the Chairperson, can be to act as an intermediary, and at times even a mediator, between shareholders and management, or among different groups of shareholders.

Another important feature of effective Boards is clarity of focus. Experienced Board members, led by a capable Chairperson, will focus on the long-term well-being and sustainability of the business. They emphasise strategy over tactics, and distinguish what’s really relevant. A truly productive Board uses at least two-thirds of its time to think about the future – instead of reviewing and questioning past dealings or, worse, being presented quarterly reports and figures. A key focus for every effective Board is talent. The Board has to make sure that the company is managed by the best available talent which means not only selecting and employing the right executives, but also to help them integrate, to supervise, support and challenge them, to help them grow, to compensate them adequately, to retain them, and, when necessary, to replace them (in time).

An effectively operating Board will be able to deal with typical problems that can arise. Some Boards experience a large difference of expertise and understanding among Board members, which is acceptable and manageable as long as it derives from a diversity of backgrounds and not from a lack of (time) commitment or meeting management. Another problem can be a clash of personalities within the Board. In general, it is advisable to have strong, and diverse, personalities in the Board room, and if they – and particularly the Chairperson – have the right set of communication skills, there will be productive discussions and a high level of added value. Another problem is directly linked to productivity: sometimes Boards simply don’t get through the agenda in the allotted timeframe, and see Board members heading to the airport before the issues are resolved. And some Boards become paralysed because issues remain unresolved or won’t even be touched on due to the fear of generating antagonism.

There are a number of simple operating methods that set apart the productive Board. In our experience, a well-organised Board:

  • Operates on the basis of a well-thought-out agenda, with relevant topics, a reasonable order and time allocation, distributed with sufficient lead time, asking members to comment and make suggestions, so as to avoid last-minute changes.
  • Plans and respects adequate breaks, which are long enough so that Board members can be 100% “present” during the sessions, i.e. no one is distracted by smart phones etc.
  • Receives all relevant materials with sufficient lead time, typically one week, and everyone comes to the meeting having read the materials, allowing to focus the discussions on questions, comments, suggestions, i.e. discussing the issues rather than taking in the information.
  • Cultivates an atmosphere of candid, reflected discussions, where ideas flow freely and respectful disagreement is encouraged rather than suppressed.
  • Generates meaningful minutes, recording the decisions and the “to dos”, as well as whatever is essential to document their reasoning, rather than producing a sort of transcript that no one will read; minutes are distributed immediately (no later than three working days) after the meeting and any comments are received well in advance of the following session.
  • Undergoes periodic evaluations of its performance, either in an auto-evaluation or, preferably, with the help of competent external experts; the evaluation is frank and confidential, so as to allow an honest discussion among Board members as to how to optimise the way the Board works and adds value to the company.

The value a Board generates for the company is highly influenced by its composition. Being a Board member is a challenging, potentially inspiring and fulfilling, but above all a demanding, sophisticated task. Board members have to be individually suitable to this task, and collectively capable to act as a team so as to bring the members’ abilities to bear for the benefit of the company and its stakeholders. As individuals, they have to be well chosen on multiple dimensions:

  • Relevant Experience – which can be functional, industry or topic-based, or simply as business (or other) leaders.
  • Analytical Strength – Board members have to process large amounts of complex and sometimes ambiguous information.
  • Judgment – being able to take decisions based on limited facts (no “analysis paralysis”),
  • Motivation (and time commitment) – wanting to really make a difference, not just collecting prestigious titles or feeling obliged to someone they know.
  • Integrity – above all, the highest degree of honesty, integrity and independence. And, allied to this, an ability to work in groups (being able to listen to and value differing points of view, wanting to contribute to group results without looking for personal recognition or benefit).

The effectiveness of this group also depends on how it is composed, i.e. how the individual capabilities, personalities and perspectives complement each other. An assortment of great musicians will not automatically form a well-honed band or orchestra. When egos are big, and spirits competitive, the opposite may happen (and often does): personalities and (often pre-determined) opinions clash, everyone tries to dominate, and all the energy produces more heat than propulsion, putting off and frustrating management rather than supporting and inspiring it. A well-functioning Board requires a significant degree of humility from its members: dedicating time, attention, energy, doing one’s homework, and limiting one’s interventions to what benefits the group rather than seeking confirmation for own actions and attitudes, and serving one’s ego. And the more diverse the group, the higher the challenge of working productively. But so too will be the benefits be higher in terms of richness of ideas and soundness of decisions. We still see too many “monochrome” Boards that are male dominated or composed of nationals from the home market.

To make the most of the potential offered by the “raw material”, the group of individual “musicians”, is the task of the Chairperson who, not unlike the conductor of an orchestra, makes sure that the total is more than the sum of its parts – and not the other way around. An effective Chair instils in the Board an operating culture of openness, seriousness, respect, humanity, humility, professionalism and discipline (which does not preclude a certain degree of humour, companionship and fun). At the same time, the Chair is a serious sparring partner and mentor to the executive team and personifies the identity and the values of the company and their owners.

This will become evident especially in times of crisis when the Board, and particularly its Chairperson, makes sure the company reacts in a calm, reasoned and expedient manner. And that the executive leadership is up to the task, backed and supported by the Board where appropriate – or replaced in a timely manner, if and when necessary, and in accordance with a succession plan the Board has developed well ahead of any crisis situation.

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

Publication of a European study on “External Executives in Family Companies“

Only 20% of students from entrepreneurial families plan to continue in the family business. Even so, there seems to be insufficient awareness of the growing risk caused by this lack of succession. This gap can be closed by a deliberate decision to recruit an external manager as an alternative to family members. The results of the study titled “External Managers in Family Businesses”, conducted by AvS – International Advisors together with EY and supported by ESCP Europe (Berlin), show that in this context, family businesses seek not merely employees but “co-entrepreneurs” who are suited to the company and the family — so the aim is to find a good emotional and cultural fit. Based on an initial qualitative study, a quantitative research was conducted in which hundreds of owners, as well as non-family top managers in big family businesses in Germany, Austria, Switzerland and The Netherlands, have been interviewed. Please click here to download the study English, French or German.

Andreas von Specht speaking at events in Monaco, at INSEAD and in the Baltics

In June, Andreas von Specht participated at the “EY Global Family Business Summit” in Monaco. He addressed approx. 400 delegates from around the world and then moderated a panel discussion on “Effective Leadership: attracting and retaining top talent in family business”. Members of the panel included James Wates CBE, Chairman of the UK-based Wates Group, who was one of the ‘Entrepreneurs of the Year 2016’ – and with whom Andreas discussed the importance of good family governance as well as the challenges in recruiting external talent for family businesses.

Later in June, Andreas was invited to address the ‘Family Enterprise Day’ at INSEAD in Fontainebleau. He introduced the concept of the ‘B Corporation’ and later participated in a panel on “A Practitioner Perspective on Entrepreneurship & Innovation in the Family Business”.

In October, Andreas was asked to speak at a series of family business roundtables in the Baltics (Lithuania and Latvia). Many family businesses in this region are currently transitioning (or about to do so) to the second generation. In front of the leaders of these businesses, Andreas spoke about “The Art of Managing Family Businesses” and how to facilitate this important transition, followed by a panel discussion with family business practitioners in which Andreas shared his insights on Family Business Governance.

News from our Latin American practice

Together with the German-Colombian Chamber of Commerce and with the support of the regional office of the IFC/World Bank Group and the CESA, a renowned local business school focusing on privately enterprises, AvS – International Trusted Advisors organised the first “German-Colombian Congress on Family Business” in September. 60 representatives of Colombian entrepreneurial families discussed strategies of family and company governance with our three regional Advisors, and experts from the sponsoring organisations.

Christian Bühring-Uhle, Head of our Latin American practice, was appointed Honorary Representative of the Free and Hanseatic City of Hamburg (“Hamburg Ambassador”) in Bogotá by the Lord Mayor of Hamburg, Olaf Scholz.

Endeavor, the leading global high-impact entrepreneurship movement, also selected Christian Bühring-Uhle for its pool of distinguished Mentors, who serve as sparring partners to a highly selective group of high-potential young entrepreneurs.

New staff at our Frankfurt office

As part of the ongoing growth of our German activities, we are happy to welcome two new team members at our Frankfurt office. As of the end of September, Karin Wollmann has joined our Research Team as Project Coordinator and will support and steer our different international assignments. Having successfully worked with Karin over the past years on a freelance basis, we are glad to have her on board as a full team member. In mid-October, Julia Brüssow started in her new role as Partner Assistant and Office Manager. As the primary contact for all administrative concerns, you can reach her at +49 (69) 2713975-21.


The Benefit Corporation

Building a culture of purpose as the business model of the future?
by Andreas von Specht and Dr. Christian Bühring-Uhle

Traditionally, a business either operates “for-profit” or “not-for-profit”. The majority of businesses are, of course, “for-profit”, existing to generate revenue to benefit a sole proprietor, or a larger group of members or shareholders. By contrast, a “not-for-profit” organisation generally exists for the primary purpose of serving a “greater good” or social purpose other than profit. Non-profit organisations may certainly earn money and create profits; however, this money must always be put back into the organisation itself and used to benefit the mission for which it was formed. In other words, no money is distributed to owners or shareholders. Benefit Corporations, simply put, do not see a contradiction between “doing well” and “doing good”: they pursue the dual purpose of making money for their owners, and making the world a better place. They combine the “greater good” and social purpose of a non-profit organisation with the freedom to create and distribute profit among owners and shareholders.

Launched in the United States, Benefit Corporations fall into two main categories: legal “benefit corporations” which face legislative requirements to generate both shareholder and social benefit, and “Certified B Corporations” which are not legally bound but are certified by the not-for-profit organisation “B Lab”. Both types of entities are referred to among proponents as “B Corps”.

B Corps are for-profit companies that pledge to achieve social goals as well as business ones. Their social and environmental performance must be regularly certified by B Lab. B-Lab was set up in 2006 with three goals. The first goal was to create an externally valid mechanism for accrediting. That somebody could look at a company and with a relatively simple grasp could say: “that is a good business.” The second goal was to change legislation. In most countries in the world, including some states of the US, it is not even legal to have the governance of an organisation measured by purpose as well as profit. If you are a Director of a company and you make a decision that is not in the immediate financial interests of the shareholders, you could theoretically be sued. So changing legislation to allow purpose to be imbedded into the governance of organisations was critical. In the past six years, 27 states have passed laws allowing companies to incorporate themselves as “benefit corporations”. And the third objective was to create a kind of community, so that companies who are interested in more than just making money can learn from each other and do new things.

The commitments that these B Corps are making aren’t just rhetorical. Whereas a regular business can abandon altruistic policies when times get tough, a Benefit Corporation cannot. Shareholders can sue its directors for not carrying out the company’s social mission, just as they can sue directors of traditional companies for violating their fiduciary duty.

Why would any company tie its hands this way?

Becoming a B Corp raises the reputational cost of abandoning declared social goals. It’s what some economists might call a “commitment device” — a way of insuring that you will live up to your original promises. Being a B Corp also protects a company against pressure from investors. Since the 1970s, the dominant ideology in the corporate world has been that a company’s fundamental purpose is to boost investor returns: as Milton Friedman put it, increased profits are the “only social responsibility of business”.

Many, if not most CEOs, still feel huge pressure to maximize shareholder value. At a B Corp, though, shareholders are just one constituency. In today’s fiercely competitive business environment, one might assume that a company that thinks altruistically is doomed to failure. To a die-hard free-marketeer, a B Corp is just a way to waste shareholder money on “feel-good” projects. However, sustainability and good corporate citizenship are issues that are routinely covered by the media, and businesses are very aware of their reputation on these issues. Businesses are also increasingly aware that their reputation can hugely impact their ability to compete for talent and engage consumers, both as loyal customers and also as promoters for the brand. Having a social mission can hence offer distinct advantages. It’s an important way for a company to attract and retain top talents. Research data shows that talents – especially younger ones, belonging to the millennium generation – want to work for socially conscious companies, and will even accept lower compensation in exchange for a greater sense of purpose. Until now, such people often work for not-for-profits, but B Corps may soon become a more attractive option.

Why does a culture of purpose matter?

Just watch the world around you. We are in the middle of another industrial revolution – but this one is happening so much faster than the original, which took almost a hundred years. The unbelievable pace with which markets, industries and business models are changing is stunning and unprecedented. In parallel, the political landscape is changing rapidly – causing a great deal of uncertainty and even fear. Systems of transportation, energy and communication are in the middle of this third revolution. Little will remain as we knew it in the 70 years before. And more and more, it becomes a common belief – even in the US, China or India – that we will have to treat our planet with more care. At the UN conference on climate change in Paris last November, 196 countries agreed to set a goal of limiting global warming to less than two degrees Celsius compared to pre-industrial levels. The agreement calls for “zero net anthropogenic greenhouse gas emissions” to be reached during the second half of the 21st century. Yet this will not be nearly enough in the long run; it doesn’t suffice that only country leaders sign protocols and treaties. A huge challenge also lies ahead for company leaders around the globe to contribute to “saving the world”: they will need to build a culture of purpose.

Purpose predicts success

The need to build a purposeful corporate culture, however, is not exclusively based on concerns for the environment and our world. Research clearly indicates that purpose oriented employees are 50% more likely to become leaders in their organisations, consider that their work makes an impact, and believe that they grow both personally and professionally. 79% of purpose-oriented workers plan to stay with their current employers longer than two years compared to 69% of their peers. They are almost twice as likely to recommend their employers. US research revealed that less than 1/3 of the U.S. workforce is purpose-oriented. It also revealed that women are significantly more likely to be purpose-oriented than men.

Non-purpose oriented employees by contrast tend to leave their job sooner, to gain less meaning from their work and to lack deep relationships at work. Purpose orientation of employees results in “higher net promoters of brand”, “higher levels of meaning”, “higher leadership potential” and “higher retention”. By building a culture of purpose, organisations will likely get into a much stronger position to attract the best and smartest talents around the world!

Benefitting society as well as shareholders

An interview with Lorna Davis, Chief Manifesto Catalyst at Danone
by Andreas von Specht and Nick Harris

AvS: Danone has entered into an agreement with B Lab, the organisation that accredits B Corporations, or Benefit Corporations. What does the concept of the ‘Benefit Corporation’ mean for Danone as a global FMCG company?

Lorna Davis: It’s about finding a credible mechanism for transforming a global business that is a marriage of purpose and profit. So B Corporation status would be – if you like my simple language – the ‘Fair Trade of Business’; somebody could look at a company and with a relatively easy grasp say that is a ‘good business’. It needs to be externally motivated and externally credited, with both a legal and a community purpose.

AvS: Why is this so important?

Lorna Davis: B Lab, the non-profit organisation who initiated this idea in 2006, started off from the “try-to-change-the-world” perspective. And if you look at the 220 questions in the ‘B Impact’ questionnaire that gets you accredited, they tend to be very small company focused. So, for example, you get a lot of points for local sourcing. However, when you are a big company, often you are globally sourcing and that has all sorts of benefits. Take Evian water. The carbon footprint of a bottle getting from Evian to Shanghai on a train and a ship is smaller than the carbon footprint of driving it in a truck to Brussels. We don’t think that global vs. local is necessarily the only question. So what became clear to us is that B Corporation thinking is very interesting but to get this movement to build scale you are going to need big companies to get on board. And ultimately, consumers will say: “I want to buy from companies that are doing good as well as making money.”

AvS: For Danone, this is the continuation of a long journey?

Lorna Davis: Indeed, yes. We have always been purpose driven in some ways. In 1917, when Daniel Carasso started this business, yoghurt was seen as very good for your stomach and was sold in pharmacies. Then Antoine Riboud took that on, saying publicly in 1972 that the responsibility of a company does not end at the factory gate, and launching what he called the ‘Double Project’. Frank Riboud took it to another level again in the 90’s, by creating the mission “to bring health through food to as many people as possible”. The organisation then sold off bits of the business that were not consistent with that and bought into more healthy products, like Numico infant nutrition. In the early 2000´s we started a system, a mechanism in the company called the “Danone Way”: a training, accreditation and auditing system inside the company to ensure our people around the world are doing their job in an ethical way. In 2006, we launched ‘Danone Communities’, creating a partnership with Muhammad Yunus in Bangladesh, to launch nine social businesses designed to change the world, each in its own little way. Its only purpose is to make social change, not to make money. Then in 2009, we created an ‘Ecosysteme’ Fund which received a hundred million dollars from the shareholders, and we said to all of the people in the Danone business, we want you to create meaningful projects that are good for the world in your local environment.

AvS: If you look into the future, transforming the core of the Danone business – what’s your sense of how costly this will be, how difficult, and how long it might take?

Lorna Davis: The answer to the question is: I don’t know. The question implies that this is an either-or-game, which it in fact has been in the past.

AvS: Is it still an either-or game today or is it possible to do both?

Lorna Davis: We think ultimately that there is no trade-off. But the question is time. How does that work in a week, a quarter, a month, a year, a cycle? And that’s where you need maturity, you need an understanding of nuances, and where we think you see a magical combination happening. For example, in Romania, our country GM partnered together with a local NGO and with the Red Cross, to promote natural birth and breast feeding. The Romanian founder of the NGO learned a huge amount from our business people about how to get things done, and our GM learned about how to make a real difference in the community. There are many people in communities who are trying to do real good, and then there are people in business who are really good at achieving results. And so if you put together the desire to do good and add that to the ability to really get stuff done, you get this magical combination. 15 or 20 years ago, people would speak about it but then they wouldn’t deliver it. But as the issues of the world get bigger and bigger, as people realise that the system is not sustainable, as people realise that there is a better way, they say: “actually, I am going to put my money on what I believe in.”

AvS: Does this resonate more with young audiences only, or is it not that clear cut?

Lorna Davis: Good question! It is complicated. For young people it is, in a way, not even news. Like that’s the way the world is. But what I notice is that we are all complicated. People have this interesting internal dynamic around their desire for money, power, and success. Particularly people who have young families and are early on in their careers. They have this internal tension around making a difference versus climbing the ladder, irrespective of whether the ladder is against the right wall. We haven’t really seen a pattern yet except to say there is a bunch of younger people that are very clear, they are in. There is a bunch of people on the sides, for example the people who work in Ecosystemes or Danone Communities, who are clearly in and who are willing to trade off more material ambitions. And then it gets more complex.

AvS: What kind of resistance do you encounter and how do you deal with that?

Lorna Davis: I love the concept that there are only two realities in life, either love or fear. And by definition, if somebody is coming at you with anything that isn’t love, it is fear. So the question is: what are they afraid of? And so resistance is just fear. And it’s understandable – we are all terrified; if we weren’t terrified we wouldn’t be awake! Life can be scary. So empathy is really important. I never met anyone who was purely nasty; people are just frightened. Empathy is therefore important to overcome initial resistance. Credibility is also important; if you don’t know what you are talking about, then why should anybody listen to you? And then you have to have logic. If you think that someone’s rationale doesn’t make any sense, no matter how much empathy they show or how much structural power they have, people aren’t going to listen. So a combination of empathy, credibility and logic is needed. But the biggest chunk of it, in terrifying times like these, is empathy, because people are afraid.

AvS: If you think about the challenges you are facing, what keeps you awake at night?

Lorna Davis: It’s the balance between disruption and stability. Big corporations are generally structured around a manufacturing process; they are designed to organise, to create discipline in activities, to allocate tasks in a chain. Effectively what we are trying to do now is move from this ‘mechanical’ system to an ‘organic’ system where we operate more intuitively and are much more porous to the outside world, much more connected with NGO’s, governments and communities. As you are moving from one system to another, you need to disrupt the first system enough so that people understand the old rules don’t exist anymore. But at the same time replace that mechanism with another system, one that is more fluid, more natural, and more organic. That is not easy to do in real time.

AvS: Are employees getting actively involved?

Lorna Davis: When we launched the Danone B Corp manifesto, we asked employees: “if we would live this manifesto, what would that look like?” And we offered a prize for the top 21 ideas. Unbelievable ideas came in, mostly from the younger people in the company. One recent idea was to run a ‘Manifestival’, an open air festival where you combine a mixture of music, messages from inspiring young people who are trying to change the world, and demonstrations of socially valuable projects. The idea is brilliant. But then the question is: “how are we going to find a way to bring that idea to reality?” We will need to take resources from somewhere in the organisation, find the money, put a team together. And that is just one example. There are hundreds of ideas being generated and each one is an opportunity to learn a new way of communicating, to live a passion.

AvS: How do you try to prioritise from all the ideas coming in – do you have a matrix or do you go on intuition?

Lorna Davis: It’s a combination. First of all, it is good crowd sourcing technology, so if a lot of people think it’s a good idea, than probably it is a good idea. For example, one of the biggest ideas is that every ‘Danoner’ should be an ambassador for every division of the company. At the moment, we might have someone in the Water division whose sister is pregnant but he doesn’t know anything about babies, even though Danone has a whole Infant Nutrition division. So the question is how do employees access the available knowledge? How do we get every single one of the 104,000 Danoners into a position where they know what they need to know about the rest of the company, and are able to access expertise and resources to make meaningful contributions outside the group? It is a big idea; it is complicated but the prize is significant. We are going after those ideas because there you’ve got leverage. It is like a matrix: size-of-prize / degree-of-difficulty. There are some ideas out there which are big and difficult. Equally, there are some ideas that are smaller scale but still important which I’m encouraging at a local level. One young employee came up with the fantastic idea for a recycled container that uses solar energy to clean water, for example in Africa. His idea is being funded by his boss directly. He is working on prototypes, and then hopefully we can scale it up.

AvS: If a general manager were to come up with a brilliant business idea in the sense of being commercially profitable, but which ran contrary to where the company is trying to go in terms of ethics, what would happen then?

Lorna Davis: It is a great question; it is one of the reasons we are so interested in the external community. We are not a very authoritarian company and we are much more interested in raising the internal awareness of our people. But when one makes a commitment to the outside world you then have to think very carefully before you break it. So I think that the external connections are coming now full circle to B Corp. When you are part of a community that wants to make a difference in the world and you have decided that you are going to do something for the greater good – let us assume that you are going to change to a new kind of ethically sourced packaging. But the costs of that packaging goes up and you could easily go back to a non-ethically sourced packaging that is cheaper, and maybe nobody would notice. But if you are part of the community, you are going to think about these questions differently.

AvS: Lorna Davis, thank you very much for your insights!

Talent seeks purpose

The implications for talent at ‘purpose driven’ companies
by Nick Harris and Felix B. Waldeier

Competency based assessment and development has been around for decades, and while best-in-class companies have continued to evolve the individual competencies over time, the underlying bedrock – results orientation, strategic orientation, team leadership – remained broadly constant for a long period.

During the more turbulent times since 2008, the ‘War for Talent’ did not cease but rather has become more nuanced, context-specific and difficult. Finding leaders with a strong (historic) track record of driving results is no longer enough; companies needed to extrapolate into the future of executives and identify those with the potential, and the character, to perform in environments which are not just more pressurised and competitive but also continually changing. In a “VUCA” world (volatile, uncertain, complex, ambiguous), companies need more than just solid ‘corporate soldiers’. They need leaders who demonstrate resilience, adaptability, intellectual curiosity, creative thinking – not least in order to be able to attract new talent among a target group that is becoming ever more demanding and “picky”.

And as if that were not enough, a new dimension is increasingly coming to the fore – both for employers and executives: doing well is no longer enough, they also want to do good.

Talent magnets

Employees and consumers worldwide are increasingly saying that they do not want to be associated with companies that, put simply, “don’t care about the world”. Millennials, in particular, ‘vote with their feet’ and do not want to work for companies that appear unconcerned by the environment and society in which they operate, companies where they cannot see the purpose.

Big businesses have in-built advantages in terms of scale, resources, competences and expertise. Organisations that can take that existing structural power and then add the purpose-driven dimension, will win in two ways: firstly, becoming more attractive to consumers as a provider of goods or services, and secondly, becoming a magnet for employees who want to work in an environment which is not just successful but inspiring. Danone, for instance – which already had a history of “doing good through the provision of healthy food”, and which is now one of the first Europe-based multinationals seeking to transform its organisation towards a ‘Benefit Corporation’ – has already seen this have a positive impact on its talent attraction.

The career helix: doing well vs. doing good

While for younger generations especially this concept of ‘doing good’ as a consumer or worker is not new, the practical realities are more complicated. Employees and executives have complex, sometimes competing, internal dynamics around their desire for advancement, money, power and success. Particularly executives who are early on in their careers, or who have young families to provide for, often have an internal tension between ‘making a difference’ and ‘climbing the ladder’, irrespective of where that leader is leading to.

Curiosity is king

For those who aspire to reach the C-suite, (multi-region) international experience is now a must. Western business leaders who have spent time living and working in developing markets such as China often find that this experience changes their perspective, sometimes in a fundamental way. The standard, predictable solutions which they are used to finding in developed markets often don’t apply there. The speed and unpredictability of emerging markets is greater, and reliable data is in shorter supply. Curiosity is a manager’s best friend and the ability to learn on the go is vital. Aspiring executives who imagine that a business career is a smooth progression, or comes clearly marked with warning signs, are not going to enjoy managing an international business in today’s environment. A different set of skills is required for navigating a journey where uncertainty and change are constant companions.

Orchestrating change

Inspiring an organisation to change itself fundamentally, whether to survive a new competitive challenge or to become a force for good in society, cannot just be commanded from the top. It requires both the right conductor, to instigate and engage the organisation from above, as well as an energised and enthusiastic groundswell of support. More junior employees also need to feel that their voices are heard and that they can operate within an organisation’s matrix to make things happen. And companies must ensure that the interplay between their internal organisation and the world externally is more open and fluid, that they are simply more connected to the outside world.

Leading the parade

What then does it take, in terms of competencies, for a person to be a successful change agent? Successful, global companies increasingly look for people who display two competencies similar to those needed by managers in China: first, “enormous curiosity” and the ability to think broadly; second, the ability to handle ambiguity and navigate a way through the complex systems and dynamics that exist within a large company. The third competency, and arguably the most important, is they need to be able to get things done while at the same time “codifying” what they are doing so that they can turn a project into a lesson – make it happen, distil what success looks like and how it was achieved, and use the learnings to teach others. This parallel processing is a critical skill. The final key competency is influencing. Persuading people and acting as an ‘ambassador’ of change requires a combination of behaviours – empathy, credibility and logic. “You can’t just turn up in a country and say: I am here from the head office and I am here to help!”

Turning up the heat on competencies

How companies grade and evaluate their people, the traditional career structure will all change significantly over time. While not looking to completely reengineer their existing career structures immediately, some of the most dynamic global corporations are already looking to “turn up the heat” on critical competencies such as learning agility. Expectations around behaviours are also being raised; career derailers are being highlighted more openly and red flagged earlier, for example ‘territorial behaviour’.

The most highly rated, and in-demand, managers will be those who do not just score well on driving results but who also have the ability and willingness to open connections externally, and to provide meaningful value for their employees, customers and community.

Equally, the most successful, and sought-after, employers will be those who do not oblige their workers to make a trade-off between doing good for others and doing well for themselves. Companies can give themselves a sustained competitive advantage through the attraction and retention of top talents with whom there is a shared harmony of (profitable) purpose.

Artikel-5-AvS-Intern_150pxAvS News

Recent news and developments at AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

Presentation of a European study by EY and AvS on “External Executives in Family Companies“

Since 2014, we have carried out a study on “External Executives in Family Companies” together with EY and supported by ESCP Europe (Berlin). Company owning families and external managers form a strong team in many family businesses today. But what makes some of these teams more successful than others? What makes a family business an interesting work place for excellent managers? And what are the crucial sticking points that enable a harmonious and long-term cooperation for both sides? We have received answers to these questions as well as many interesting perspectives from large family businesses. Initial results were presented a few days ago during the “EY World Entrepreneur Of The Year 2016” conference in Monaco. Within this event, and as part of the “EY Global Family Business Summit”, Andreas von Specht moderated a roundtable discussion on “Effective leadership: attracting and retaining top talent in family business” in front of hundreds of family entrepreneurs from around the world. In the upcoming months, the main results and findings of the study are to be presented at different events with family entrepreneurs in Europe.

New office in Geneva

Our Geneva office, opened in early 2015, has moved to a new location a few weeks ago. From now on you will find us even more centrally located within walking distance of the main train station at Rue du Mont-Blanc 19. As an important centre for consumer and luxury goods multinationals, international organisations, family businesses and family offices, Geneva plays a strategic role within our firm’s global client support network.

Latin America practice is growing

After the introduction of Ricardo Sala and Nelson Echeverría as our two new Partners in the Bogotá office in 2015, we have completed various assignments not only in Columbia, Mexico and Peru, but also our first project in Ecuador. We advise, for example, the owning family of one of the leading industrial companies, as well as one of the largest agro-industrial groups in the country, in the development of owner strategies, succession and governance structures. Other projects have a broad international scope, for example the development of a regional expansion concept (strategy and organisational structure) in the Andean region for a global agricultural / mining group. We are also active in the development of a regional expansion concept (strategy and organisational structure) in the Andean region for a global agricultural / commodity group.

New website and e-mail addresses

A few days ago, our new website went “live”. Please feel free to visit our completely redesigned website at our new domain to enjoy an overview of our consulting approach, our consulting services and our team, as well as our offices and cooperation partners. As part of the change of our internet domain our e-mail addresses have changed accordingly. The contact details for each of our offices can be found on our new website. Although all messages to the previously used e-mail addresses will be automatically forwarded, we would kindly like to ask you to update the contact details in your e-mail software.


Due to the continuously growing number of international clients and consulting projects, and the corresponding demand, we are pleased to offer you an English version of THE TRUSTED ADVISOR from this issue onwards. Please feel free to inform those people in your English speaking network for whom our publication might be of interest.


003-1-cbuRole Separation as the Key to Success in Family Business Management

Recommendations for family businesses in the second and third generation
by Dr. Christian Bühring-Uhle

In order to be able to look back on a successful entrepreneurial life, one should not only have built a strong and valuable company but should also have created the basis for sustainable further development by means of a viable succession plan – great work outlives its creator. More than three quarters of companies in Europe are family owned. But only about a quarter of them manage to pass the business onto the third generation. This can be due to a lack of children or grandchildren, or nieces and nephews, who have the appropriate age, and who are “ready, willing and able”, in terms of education, experience and personality, to run the business. Sometimes, attitude is the problem: do the potential successors see themselves as destined to “serve” the company, its owners, its employees and the community in which it is located? Or do they feel entitled to rule due to a birth right?

In the founding stages of a company, the owner and manager are typically the same person. When the business is passed onto the next generation, this usually changes. In the second generation, you often find shareholders who do not work in the company, and equally family members who work in the company but who are not (yet) shareholders. But even if all owners are active in management, and all managers hold shares in the company, they do not simply work on their own account – they primarily work for others, they “serve” and are accountable to the other shareholders. A lot of tensions can arise from this situation, which can ultimately destroy a company if they are not adequately managed. Approximately 70% of successful entrepreneurial families lose control of the business, and suffer serious emotional damage, between the first and third generation. In 60% of the cases, these problems can be traced back to interpersonal conflicts (dysfunction in trust and communication).

The most important “neuralgic points” are:

  • How to create appropriate, effective monitoring mechanisms for managers who are also (co-) owners?
  • How to ensure that on fundamental issues, management obtains the timely, well-founded decisions that you would expect from a competent owner?
  • How to ensure that family members working in the company are employed, developed, managed and remunerated according to their abilities?
  • How to protect the interests of the shareholders who are not working in the company?
  • How to avoid the phenomenon, observable in many hierarchies, that in the course of time managers are promoted to positions they cannot handle – also known as “Peter Principle”? (Family businesses are liable to seeing employees that “belong to the family” or have been “loyal” to the family for many years, often benefit from special benefits and protection.)
  • How can first-class talents be won, selected, integrated and retained in the company, regardless of whether they are external executives or family members?

The key to solving all these issues is to neatly separate the roles of owner and management. The goal must be to have both roles exercised in a professional and effective manner so as to secure and grow the business, and to maintain harmony in the family owning the business. This, however, typically requires a paradigm shift. Especially the second generation – born into a family of entrepreneurs, in which typically the owner, or often the owning couple, has run the business the way he or she liked – has to understand that “the game” is different in subsequent generations. Those who are active in the company’s management have to realize that they primarily serve the company and its owners in their entirety. In other words, they must act transparently, have to answer to critical questions and be accountable. This does not work with a mind-set rooted in a feeling of entitlement. And for the shareholders, whether or not they are involved in the management of the company, this means that they have to develop the courage and the competence to monitor the brother, uncle, cousin, nephew (or sister, aunt, etc.) and demand transparency and accountability. This is not only about exercising one’s rights as a co-owner, but also about the obligation towards the family fortune – and towards the family members who take on an often difficult and burdensome task and responsibility, and who have the right (and typically also the need) to receive feedback and to develop themselves further.

This task of the professional owner is not an easy one, but it is inescapable. And from a certain company size on, this task cannot be adequately accomplished without the help of competent third parties, typically in the form of a supervisory or advisory body. In the case of a public corporation, this role is typically performed by the Board, although it is sometimes complemented by a Shareholder Council or Family Council. However, in many family enterprises, this role falls to the Advisory Board.

Such a body can be the key to exercising the owner’s role in a competent manner, and thus to the neat separation of the roles of owner and manager – if its members are well chosen, and have the right mandate and the right attitude. The mandate can either consist of the delegation of certain shareholder rights – the competence to make fundamental decisions – or at least the obligation that the (advisory) board has to be consulted on important issues. The composition of this body is essential: the owning family with their values and strategic objectives should be adequately represented, but there should also be external directors with entrepreneurial expertise, relevant industry knowledge and experience in the management of companies, as well as a sufficient distance from the persons directly involved. The attitude is of great importance as well: apart from strict objectivity and impartiality, coupled with complete intellectual and material independence, advisors must also have the courage to ask uncomfortable questions and to express unpleasant truths in order to be effective sparring partners. They also have to be perseverant enough not to be satisfied with evasive answers or mediocrity. The Chairman of the Board naturally has a crucial role, giving guidance, “leading the leaders” in the interests of the owners, and acting as a bridge between owners and management, sometimes also among shareholders and among members of management.

It is not easy to bring about the paradigm shift mentioned above and to build a solid structure for the competent exercise of the owner’s role. Often this is not possible without competent and trustworthy external support. But the effort is worthwhile, since it is the key to preserving an entrepreneur’s legacy.

businessman choosing right partner from many candidatesIn or Out?

Perspectives on internal and external CEO appointments
by Nick Harris

Appointing a new CEO is likely to be the single most important people decision that most Boards and owners will ever have to make. And the choice on whether to make an internal or external appointment is often a difficult, and sometimes a highly emotional, dilemma.
Below, we give some summary perspectives on the relative merits and considerations of internal vs. external candidates. We have deliberately not referenced the many published studies on this topic, but rather have drawn on our own observations from previous C-level succession projects.

Internal Appointment

+ Conveys a sense – particularly internally – of stability/continuity rather than disruption (i.e. ‘evolution not revolution’)

+ Sends a message that the company develops/promotes from within, up to the top level

+ Candidate is a well known commodity (i.e. you know exactly what you are getting)

+ Candidate already knows the organisation (therefore, no/little risk in terms of cultural fit)

+ Candidate’s learning curve is less steep (i.e. he/she knows what they are getting into; can be mentored ahead of time by the current incumbent)

Less likely to act as a change agent; more likely to bring incremental – rather than breakthrough game-changing – improvement

May be less likely to challenge and ‘stand up to’ the Board

External Appointment

+ Conveys a sense – particularly externally and to the markets – that the company is continually striving to out-perform and is not ‘resisting on its laurels’

+ Sends a message that the company is committed to recruiting the best-in-class, global talent

+ Candidate brings in new knowledge and best practices from other organisations

+ Candidate will bring a fresh perspective, likely spotting both weaknesses and opportunities more readily

Steeper learning curve; candidate must learn about a new environment and adapt to the culture (a comprehensive onboarding & integration programme is indispensible to mitigate the risk)

Risk that internal candidate(s) become demotivated or leave

Thus there are pros and cons to both kinds of appointment. Appropriateness is situational: dependent on the current and future/looked-for state of the company, and the type of mission (both the ‘what’ and the ‘how’) which the CEO must accomplish.

External appointments are, by definition, riskier… However, (successful) external appointees typically drive greater value over time… So, the risk with externals is higher, but so too is the potential upside.

In conclusion, considering both internal and external options – objectively and rigorously – is best practice. And ultimately, the ‘right answer’ is the ‘right candidate’!

Respect Ethics Honest Integrity Signpost Meaning Good Qualities

Traditional values: a benchmark for start-ups?

On the importance of ‘traditional values’ for modern entrepreneurs
by Andreas von Specht and Felix B. Waldeier

Particularly in Germany, the outstanding position of family businesses, which have been successfully built up over several generations, is repeatedly emphasized. If one asks the family managers concerned, one can learn a lot about the importance of flat hierarchies, quick decisions or long-term thinking. In the same breath – often in contrast to rather anonymous corporate structures – there is talk of the great importance of “values”. Loyalty, trust, honesty, integrity, justice and reliability – these values are often associated with Germany’s family businesses. And in many cases, rightly so. However, we were also interested in how today’s entrepreneurs / founders of start-ups think about the significance of such values. Do traditional values fall by the wayside with start-ups, rapid growth and permanent change? Are they even affordable? In the Berlin start-up scene, we met the successful founder of Thermondo, Philipp Pausder.

Mr. Pausder, entrepreneurial values are often closely related to the type of company. Therefore, first of all the question: In which area is Thermondo active?

Thermondo is a technology-driven heating engineer. We have fundamentally optimised the processes of changing the heating system, revolutionising the trade and opening up the possibility for the energy industry to enter into small-scale energy services. Thus, our customers come more easily and faster with good prices to a new heating service.

What significance do classical, traditional values such as loyalty, trust and honesty have for your entrepreneurial activities?

A very high significance – especially in the relationship with our employees. In today’s world of work, talent and human capital are the scarcest resources. These must be secured and promoted by a solid framework of values within the company.

And what about an aggressively growing company in the context of corporate values?

It is of paramount importance for us to attract the best and brightest minds. People who have a great passion for their job and who – often due to valuable experience and a good education – often have their pick of the jobs on the market. Fairness towards each individual employee, and reliability in agreements and in deeds are therefore the core elements of the entrepreneurial integrity experienced by the employees.

How do you lure the “best and smartest minds” into your company?

Younger top performers naturally want to earn well, conduct dialogues at eye level, and quickly feel extensive freedom and responsibility. But they also want to be part of a company for which it is worth working 50-60 hours a week. Our values and the meaningfulness of the company’s content are extremely important here. For me, values thus become, in addition to other functions, a pillar of intrinsic motivation.

What role do these values play in the relationship with your business partners?

Of course, values are also extremely important in the relationship with our business partners. We are transforming an entire economic segment and are thus in the role of the change driver and innovator. It is important to understand exactly how much change we can expect from our business partners and other market participants. We have to challenge them, but we must not overburden them. In doing so, it is crucial that we prove to be a reliable, value-oriented business partner despite, or precisely because of, our differences.

Are there other values or maxims that characterise your company?

The freedom to think, to question and a very high degree of willingness to change! As a small, young and very fast-growing company we simply have to be better, faster and smarter. We can only do this if we attract the best people, as already explained. At the same time, these top talents must be given real freedom to think and act. And finally, we have to align the whole team to a common corporate goal.

Do you see a difference between the value system of traditional family businesses and that of start-ups?

For me, the values just mentioned are not always “typical” of traditional family businesses. Rather, for me they generally represent values for “good entrepreneurship”.

What do you see as the main differences between traditional family businesses and start-ups?

In my view, the biggest difference between traditional companies and start-ups is not the canon of values, but the uncompromising focus on productivity. Without productivity and the associated growth, a start-up will not reach the next round of financing. Every day is precious, and any standstill is a step backwards. Formally and informally, we set ourselves goals on a weekly and monthly basis and define clear milestones that we want to achieve during this period. There are no rigid job descriptions, but priorities and job content must be constantly and flexibly adapted to our goals and needs.

To what extent do you combine entrepreneurial values with the “uncompromising focus on productivity” you describe in order to achieve your entrepreneurial goals?

Of course, the management of a company must not only take place at the level of key figures and milestones. Employees in start-ups especially need orientation, esteem and a high degree of proximity to management due to the incredibly high dynamics and flexible job design. Only then is it possible to commit to a common goal.

When do you see a common goal or entrepreneurial success achieved?

For me, the yardstick for entrepreneurial success means having created something that no longer disappears and thus makes a lasting contribution to the prosperity of our society. To have significantly changed a market, or to have spotted an upcoming development early and then consistently implemented it, is entrepreneurial success for me. We are often told that what we are planning at Thermondo is actually impossible. That we cannot change the sector sustainably or even to digitize it. But we show that it is possible after all!

How important are sustainability and the long-term nature of success to you – and how would you define them?

Sustainable, long-term success is very important to me and for our company. We always tell our employees that we want to create a new type of company: a digital, nationwide, vertically integrated business, the gatekeeper in a small-scale energy landscape. That does not exist so far, and my incentive is it to prove that we are not a temporary phenomenon, but a pioneer. I would like people to look back in ten years and say: “Thermondo was the pioneer, others copied it.” In order to be able to say this one day, we must have sustained success. For me, sustainable success means profitability with sustained sales growth.

Do you see a certain responsibility of young entrepreneurs towards society?

I consider social responsibility to be very important – and of course young entrepreneurs like us also bear it. Our activities at Thermondo, for example, contribute to the reduction of CO?. In addition, we create jobs and train our employees for tomorrow’s jobs, for which there are currently no formal courses of study. We have already created 150 jobs, by Christmas it will be just under 180. This achievement is very important to me! Large companies generally cut jobs due to their lack of innovation. Our society therefore needs the small, innovative units because they create the jobs.

Are traditional values increasingly losing their importance in the course of globalisation and the internationalisation of companies?

Not at all! But from my point of view, the past has no universal claim to the existence of values. There are numerous examples of companies from the time before globalisation and internationalisation that did not live these traditional values at all. Basically, I do not see any signs that values are in retreat in the context of globally operating companies, but rather that they are gradually becoming more important again.

Mr. Pausder, thank you very much for this interview!

Artikel-5-AvS-Intern_150pxAvS News

News from AvS – International Trusted Advisors

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New consultant and new office in Geneva

At the beginning of the year, we opened our third international office, in Geneva. Geneva is an important hub not only for the European headquarters of various consumer goods companies, but also for a large number of family businesses and family offices. It is of strategic importance for the worldwide support of our clients.

Nick Harris joined our team at the beginning of the year. Nick, who has lived in Geneva for many years, has been with Egon Zehnder for the past decade, including as a Leadership Team Member of the firm’s global Consumer Goods & Retail Practice. In his new role, he will focus on establishing our Geneva office and, in particular, strengthening our international client relationships. In addition to his industry specialisation, Nick has experience in talent management and supporting succession processes, particularly in family-run companies.

New Partner / Senior Advisor in Bogotá

In spring, we held several events at our office in Bogotá, which was opened last year, to further expand our activities in South and Central America. Since then, our partner in Bogota, Dr. Christian Bühring-Uhle, has quickly succeeded in strengthening the team:

Ricardo Sala moved from Spencer Stuart to join us in the summer of this year and will in future advise our South and Central American clients as a partner. Ricardo, who was Colombia’s ambassador in Bonn in the 1990s, has many years of experience as a CEO and supervisory board member in family businesses, among others. At Spencer Stuart, he was responsible for the industrial and board practices in Colombia and other Latin American countries.

With Nelson Echeverría, the former CEO of BASF Colombia, Venezuela & Ecuador, we have gained an outstandingly well networked Senior Advisor for building client relationships. He will provide us with close advisory support and, on a case-by-case basis, will also work on challenging consulting projects. Nelson has decades of experience in international top management and is involved in various supervisory boards, advisory boards and foundations. Together with Christian Bühring-Uhle, he is a member of the Executive Committee of the German-Colombian Chamber of Commerce.

Expansion of our network of cooperation partners

In the past two years we have succeeded in establishing close relationships with cooperation partners in countries where we do not yet have our own offices. We are now able to carry out international projects with the support of highly experienced consultants in the UK, the Czech Republic and Italy, as well as further afield in New York, Atlanta, Montreal, Singapore and Sydney. In the long term, AvS – International Trusted Advisors aims to establish at least one office on each continent.


Artikel-1-Fremdmanager_150pxThe success factor “external manager”

External filling of management positions in family-owned companies
by Andreas von Specht

  1. Recruitment challenges

Less than half of family businesses are likely to hand over the reins to a next generation of managers from within the family itself. Many owner families are simply running out of young talent. But even if there are children or grandchildren, this does not mean that they have the aptitude or experience to take over the business.

While the sale of the entire company may be considered by some family businesses without an internal successor, this option is still not desirable for many families. So, if a succession within the family is not possible, or a gap until the next generation is ready has to be bridged, the ‘external management’ option inevitably comes into play.

More and more family companies are deciding to hire managers from outside the family to take on the operational management of their companies. Yet for many there is still uncertainty as to how such a process should be professionally organised and in a way which does not simply rely on “gut feeling”. Mis-hirings of important management functions with external managers are frequent and can be very expensive. They can also lead to a damaged image in the eyes of customers, suppliers and employees. Experience with, or a cultural fit to, SME businesses, and especially family businesses, is crucial. In our consulting practice, we have heard of numerous external managers who did not really understand the values and objectives of the owning family – and were therefore unable to align themselves and perform accordingly.

In order to carefully prepare for the recruitment of an external manager, the shareholder group must first gain clarity about the tasks, distribution of competencies and responsibilities of the top management function. It will be difficult to win over a first-class professional manager for the company if the family is not prepared to cede to the manager significant room for manoeuvre and decision-making authority. The definition of a role profile naturally also includes the question of which “critical competencies” an external manager must bring with him/her. Here it is not only a question of years of experience, but also of the development of certain fields of competence, for example: the ability to develop and implement strategies, to introduce change into the company, or to engender a strong “customer orientation” within the sales team. In order to be able to agree on this competence picture, the family should be guided by what specific results will be expected of the external manager in the coming years, and by how the success of his/her activity will be measured.

  1. Success factors for external managers in family businesses

The successful “fit” of many external managers in family businesses is often decided after only a couple of brief meetings. There are a large number of family businesses that have been dissatisfied with the first appointments of external managers to their top team. In many cases, it turned out that the family had not devoted sufficient care and time to interactions with the new hire, either before or immediately after the appointment. Family businesses often have unique sensitivities or ways of doing things, which the newcomer inadvertently overlooks or transgresses – and which would not immediately lead to a conflict in large companies but send out an alert signal in the Mittelstand environment. For example, the choice of the “wrong” company car brand, office equipment that was perceived as “too expensive” or an “exaggerated self-portrayal” in public. Many family businesses also expect the outside manager to move to a (small city) location with their family at short notice; here too, misunderstandings and timing can cause problems. So, in addition to a good integration & onboarding process, close personal contact and continuous, open communication is of great importance. According to studies, personal conflicts between family members and the external manager are much more likely to contribute to the failure of the manager than a shortfall in his/her professional qualifications – and these conflicts usually arise at the beginning of their tenure.

A further, essential success factor hides behind the question of successful ‘governance’. A careful definition and organisation of the owner function, for example supported by a competent advisory board, provides a necessary framework within which the external executive can manage – and be managed. Particularly during the transition from an owner-managed to an externally managed company, friction often occurs if the owner side of the equation is not appropriately and professionally set up. Non-family advisory board members, in particular the chairman of the advisory board, often play a key role, as they can act as ‘bridge builders’ ensuring mutual understanding between family and management.

The role of external managers in family businesses depends not least on their personal ties to the entrepreneurial family and their behaviour towards them. There seem to be some unwritten rules that clearly influence the success of outside managers in family businesses. For example, the advice to keep a certain social distance to the owner family and not to strive for the membership in the same clubs or associations. Or the requirement to treat shareholders of different tribes as equally as possible in order not to get caught between two sides.

  1. The long-term commitment of external managers to family businesses

In solving the problem of non-family succession, there is also the challenge of motivating outstanding external managers to stay in the company for an extended period and to act in a long-term manner. Too often, bonuses are seen to be handed out according to ill-defined terms and “in the manner of a landowner”, although there has been a professionalisation of the incentive systems in family businesses in recent years with quantitative values more often used as the basis for assessment.

In our consulting practice, we have seen cases where equity investments were considered as an element of the remuneration package – and then actually implemented. There are some major obstacles to overcome, especially the psychological barrier of many families to ever include an outsider in the circle of shareholders and to grant him/her corresponding rights. The structuring of a participation is difficult: the balancing of the participation relationships must be taken into account, the actual share valuation must be comprehensible and fair, and ultimately the details of the transfer of capital shares (e.g. inheritability of the shares or retransfer of the shares upon withdrawal) must be regulated. We recently advised a family business in which all these challenges proved to be surmountable after the family had made the – initially difficult – basic decision to transfer capital shares to an external manager. This fundamental choice was based on the fact that doing so would enable the attraction of a much higher calibre of CEO candidates. Executives who would certainly have wavered beforehand given the company’s size and existing compensation systems, could now be interested in a long-term perspective of genuine entrepreneurial participation.

There are undeniable difficulties in implementing an external manager’s equity stake, and the administrative and cost implications of implementation are not insignificant. However, this should not lead to a premature rejection of this option, as there are also enormous opportunities to win over real entrepreneurs for the greater long-term development of the company.

If family businesses can succeed in attracting and integrating well qualified and highly entrepreneurial professionals into their companies, these incomers can be the decisive factor in sustaining and improving business success.

Artikel-2-Gratwanderung_150pxA Blessing or a Curse

Family members in management (1): Challenges and risks
by Dr. Christian Bühring-Uhle

Most family businesses are still run by members of the owner family(s), often with great success over generations. However, many also fail in this task, and some, even without failing in the business dimension, are unhappy in a complex role which they consider to be an “ungrateful task”. And this is not only a problem for the affected family manager, but often an existential question for the company. The typical competitive advantages of family businesses – short decision-making paths, long-term thinking, a clearly formulated mission, high employee identification with the company, better handling of risks, putting the interests of the company ahead of personal advancement, etc. – can only come into their own if the family business is well managed. Therefore, we would like to highlight some of the problems as well as the most important factors that can determine the success – or failure – of family members in management.

To be a manager in the company of one’s own family is associated with special requirements, because typically one must not only (co-)manage the business, but also “the family” – and everything implied by this apparently simple term. The associated complexity represents a special challenge. Some family managers are overburdened because they have not been sufficiently prepared for the management tasks they carry out and may simply be unqualified. In addition, there can be a range of issues and negative feelings including “loneliness at the top”, a (rarely admitted) sense of being over-burdened, poor decision-making, demotivation and fluctuation in middle management, a lack of trust, “trench warfare” in the family – and a struggle for the recognition and trust of other family members. This may go hand-in-hand with a lack of management ability which, in the worst-case scenario, can run through an entire organisation.

Especially in family businesses, there are prime examples of the “Peter Principle”, i.e. that managers are promoted until they reach the level of their own incompetence and are thus inevitably overtaxed. On the one hand, this applies to family members who are entrusted with management responsibilities not because of their qualifications but because they belong to the family (and are then, of course, regarded with suspicion by other executives). On the other hand, there are often also non-family managers who have proven themselves primarily as “faithful servants of the family” rather than competent business leaders (and this also does not escape the notice of other executives, especially top performers).

Mediocrity has a tendency to take hold, with the phenomenon of the “pulley block” being observed: mediocre managers attract mediocre team members who do not question them or pose a threat to their position. Nobody gets hurt but a dangerous comfort zone – often confused with a good working atmosphere – is created. As long as the company is doing well, these conditions are consciously or unconsciously tolerated by the shareholders, i.e. the “family”. The longer this condition persists, the more dangerous it becomes: sometimes an ‘addiction problem’ arises where the affected family member becomes increasingly dependent not only economically but also psychologically on the family business, and the role and status which it confers on them.

When times get difficult, there is often a calamitous lack of adaptability and incompetent family managers fall into a deep hole. In addition to the drama of professional failure, there is the feeling of having failed in front of the family and of having risked the legacy of their ancestors. And if the affected person then has to look for a new job externally, they may suddenly find that they are considered “unemployable” in the ‘real world’. The challenge then arises to find a face-saving task for the affected family member that corresponds to their actual abilities and through which a valid contribution to the success of the company (if it survives the crisis) can still be made.

In the article “Navigating the Minefield”, which follows on from this article, we turn to the precautions that can be taken to deal with these problems and to avoid the “pathology” of the family business.

Artikel-4-Allrounder_150pxAllrounder with high social competence

Why the demands placed on chairmen of advisory boards are particularly high
by Andreas von Specht

With around 15.5 million employees, family businesses account for around 60% of all jobs subject to social insurance contributions in Germany. They thus form the economic backbone of Germany and are regarded as the export engine of the German economy. Family businesses are often faster, more direct and much more innovative than corporations. But the processes of change to which German family entrepreneurs have been exposed over the last 20 years are enormous – and have completely redesigned many a business model: internationalisation, environmental protection, technological progress and, above all, the further development of the Internet and e-commerce have required adaptation, change and far-reaching decisions. At the same time, many family-run businesses have experienced a generational transition that has in itself severely challenged or even overtaxed some entrepreneurs. While more than two-thirds of large, non-family owned companies can count on the support of a supervisory board for these challenges, more than half of family businesses in Germany do not yet have such a supporting board. If the advisory councils, which were set up exclusively as disaster protection for the untimely loss of the entrepreneur, were also removed, prospects would look even more critical. Even a few very well-known, globally active family businesses with an annual turnover of several hundred million euros cannot boast any advisory board, or at least not a professional board with decision-making powers and competences.

What at first glance seems incomprehensible and almost negligent for larger companies often has quite mundane reasons: a reluctance to have the business examined or even talked about, a fear of ceding independence, a concern about greater administrative effort or wasting of time. The costs associated with setting up an advisory board are also often cited as a reason for not taking action.

A carefully compiled and well networked advisory board can be worth its weight in gold: as companions, sparring partners, intermediaries between shareholders, and facilitators between shareholders and management. There are, of course, many shareholders with operational activities, but also those who are only interested in accompanying the company. Particularly in the case of important personnel, strategy, or investment decisions, different shareholders often have a clear opinion – but are not necessarily always aligned. A well-positioned advisory board, and above all a well-accepted and respected chairman, is able to find a balance of interests in such situations, to moderate or even to keep rather uninformed or even uninterested shareholders at bay.

The advisory board can play an important role in communicating the values, visions and strategic parameters defined by the shareholders to the management. Above all, however, it can also play an important role in the “calibration” of the entrepreneur himself – who otherwise often has to function “alone at the top” and under pressure of responsibility and decision making. A good advisory board controls, supervises and advises the management and the family. As a neutral authority, it also protects the management against excessive financial demands or power claims of the shareholders. His role can also become particularly important in the often emotionally very difficult succession decisions, where so many families ultimately fail – failing both the business and the family.

The large variety of challenges place particularly high demands on the “all-rounder skills” of the chairman of the advisory board in particular. After all, he should not only actively accompany and control, but also assume responsibility for important decisions in a knowledgeable manner. In addition to a considerable time budget, “general management” competence and leadership experience, empathy, steadfastness and inner independence are also required. As an accepted, respected and as objective mediator as possible, the chairman should ideally already have experience with the specific relationship patterns in family businesses. In contrast to anonymous shareholders, emotions and possibly even heavy “emotional backpacks” from the past can often play a role. At the same time, the chairman in particular must have the ability to recognise and protect the interests of the shareholders even in the case of differing opinions within the advisory board.

This is certainly not a job for a dilettante, but a highly demanding task of great responsibility.

Although the personal liability risk resulting from the legal situation and the public discussion on corporate governance and compliance in the supervisory boards of publicly traded companies has so far been incomparably higher, it is still not possible to assess the risk of liability in the case of the company’s own shareholdings. Fortunately, there is also an increasing professionalisation and at least a significantly increased moral liability in family companies and their supervision. This is a good thing, because the times when the owner recruited his advisory board from tennis partners, Rotarian friends and, if need be, the auditor, should be a thing of the past.

There is no general consensus as to whether the chairman of the advisory board should be delegated from the family or better recruited from the market. For example, there are many successful family entrepreneurs who have seamlessly transferred to the function of the chairman of the advisory board after the generation handover – and who have actually let go of their operative responsibility for day-to-day business. Such advisory board chairmen, such as Jürgen Heraeus (Heraeus), Paul Leibinger (Trumpf) or Michael Otto (Otto Group), then have the invaluable advantage of intimate knowledge of the overall business, the strategic challenges of the market, and the mixed situation within the family. On the other hand, there is also a lot to be said for the advantages of filling the Chairman position externally, because not every full-blooded entrepreneur is good at “letting go”. A strong external chairman of the advisory board is also in demand if the family is more shareholder-oriented than entrepreneurial and, for example, has too little business management knowledge. Or exactly the other way ‘round, if the family has already mastered the entire operative management and a strong, neutral outsider is desired to ensure objective ‘calibration’ and corporate control.

The decisive selection criterion for the appointment of the chairman and the board as a whole must be competence. Of course, trust also plays an important role – but competence and trust usually go hand in hand. In its overall composition, the advisory board should cover specific competencies that are important for the respective family business – such as industry knowledge, strategic orientation, balance sheet security, international business expansion, acquisition experience or talent management.

How do you find and win over such advisory board members – and especially chairmen? With the slowly increasing professionalization of the advisory boards, the professionalization of advisory board searches has also increased. It is often simply not enough to ask friends of entrepreneurs from the region or to search one’s own regional network. Especially since it is by no means guaranteed that the successful entrepreneur who is a friend of the entrepreneur will then also provide an excellent advisory board including the necessary time budget. The big advantage of a professional search carried out by an independent consultant is the broad selection and calibration of competencies. Times have changed here as well: today, even well-known candidates for the chairmanship of an advisory board must put up with the fact that not only are they are interviewed, but they are subjected to a professional selection process. The good news is, the chances of winning an all-rounder with high social competence for the family business should increase significantly.


AvS News

News from the AvS – International Trusted Advisors environment

The past months were marked not only by interesting client projects, but also by exciting developments within our firm that we are delighted to share with you in this edition of THE TRUSTED ADVISOR.

New office of AvS – International Trusted Advisors in Bogotá (Colombia)

At the end of 2014 we opened our second foreign office in Bogotá (Colombia). With continuously good growth rates between four and seven percent, a strong increase in exports and international investments, Colombia has stood out from the rest of the continent for several years. Dr. Christian Bühring-Uhle, who lives in Bogotá, will be a driving force behind the establishment of the office this year and thus lay the foundation for successful cooperation with Latin American clients.

Cooperation with Ernst & Young as part of an international study

Owner families and external managers form a strong team in many family businesses today. But what makes some teams more successful than others? What makes a family business interesting for very outstanding managers in the first place? And where are the crucial sticking points which must be managed to enable a harmonious and long-term cooperation for both sides? Together with Ernst & Young and with the scientific support of ESCP Europe in Berlin, we are currently conducting a study on “External managers in family businesses”. A large number of German family businesses with at least 300 employees and an annual turnover of at least EUR 300 million, which are exclusively run by non-family (external) managers, are being surveyed. In order to shed light on the various perspectives, not only these managers are surveyed, but also the owners of the family business themselves. What’s special: our study is one of the first to examine this interesting topic! We will inform you as soon as the results are available, and the study has been published.

Late summer reception in Frankfurt am Main

Together with around 70 entrepreneurs, board members and top-class guests, we said goodbye to the last, admittedly somewhat mixed summer on a mild evening at the beginning of September. With a glass of wine and good conversations around our fountain we not only took the opportunity to inaugurate our new garden, but also our new office floor in the mezzanine.

Christmas campaign for young refugee victims from Somalia and Afghanistan

At the end of the year, the crispy geese are taken out of the ovens in many places and a good bottle of red wine is served with them. Not only at this time of year, but especially then, one should pause and think of those who are suffering from war, persecution, oppression or hunger at the same time. In order to escape these torments, people are increasingly seeking protection in Germany – including a group of twelve young refugee victims from Somalia and Afghanistan. They are currently being looked after by the ASB Lehrerkooperative gGmbH in Frankfurt, learning German and experiencing active integration. We were impressed by this project and accordingly we, too, organised by our five student employees, wanted to make our contribution. We were happy to fulfil the young people’s wish for a foosball table and not only handed it over personally shortly before Christmas, but also inaugurated it together with them.


fbwaldeier_middleThe Challenge of Generational Succession

Entrepreneurial challenges in handing over the baton
by Felix B. Waldeier

This year, as every year, more than 20,000 family businesses in Germany are looking for a CEO-successor. Ideally, the successor should come from their own offspring, although this is not always possible – or in some cases can go impressively wrong. According to estimates by the Institut für Mittelstandsforschung (IfM), on average only 10-15% of companies surveyed survive to the third generation. And these empirical values are not forecast to improve in the face of demographic change. Accordingly, there are numerous family entrepreneurs who are looking to external managers to succeed them due to a lack of their own junior staff – or who even wind up having to sell their company.

Apart from the demographic aspects of the problem, however, serious intra-family conflicts are often the cause of unsuccessful – or even non-existent – company successions. In this context, it would certainly be exaggerated to speak of a general taboo on this subject. But as a rule, Germany prefers to sing the devotional song of praise to family businesses, which are successful in the world markets as small, innovative, cost-conscious and agile players with great advantages such as speed, decisiveness and adaptability. And, of course, it is precisely these advantages and special virtues specific to small and medium-sized enterprises that give rise to major competitive advantages – and often outstanding world market leaders.

Unfortunately, however, it is also true that these advantages can quickly turn into disadvantages if the patriarchs lack their own calibration and self-reflection, and if they cannot let go themselves. In our experience, anyone who thinks that the problems that large family-owned companies like Oetker, Schlecker, Merckle or Oppenheim are faced with every month in a variety of business magazines are exciting, possibly inglorious, but also extreme exceptions is unfortunately mistaken. They are perhaps the tip of the iceberg, but less spectacular problems do proliferate in smaller or less prominent family businesses as well. And certainly, there are also several family feuds that have been spared by the research of journalists (and by luck and chance). Quite a few of these conflicts are directly related to succession issues.

But what exactly are the causes of these problems around company succession? In many cases, the next generation simply has different future plans for themselves or the company than their parents. In other cases, potential successors (apparently or actually) do not have sufficient entrepreneurial qualifications to take over the business. And still far too often the handover is delayed, missed or even revoked as an essential part of the entrepreneur’s performance. In our consulting activities, we have already witnessed tragic human conflicts in family businesses, in which, for example, the senior family member unexpectedly came back at the age of 78, after he had already handed over the company (but not the majority of the shares) eight years before to hundreds of guests with a symbolic key and tears in his eyes to his son, who was no longer so young. In the meantime, he had probably noticed that things could get boring in Tuscany at some point – and that the son would probably not be able to do lead the business without his help and guidance. Not infrequently, strongly emotional power struggles for succession, shares or influence between or within generations and family tribes wear down those involved. This can quickly lead to disagreements between the shareholders, and in the worst case can even lead to the break-up of the company.

What should family entrepreneurs be advised to do? Even if, of course, recommendations always have to take the individual context of the company into account, it can certainly be stated: A successful succession must be planned with sufficient advance notice and comprehensively prepared with all parties involved. Most succession situations arise purely for biological reasons due to age – and are therefore actually predictable. Sometimes, however, fate also strikes, and a succession must be organised at very short notice, e.g. for reasons of illness. Unfortunately, it is precisely these emergency plans that the majority of the affected companies and families do not have in their drawers. And in such cases, is there no advisory board that already bears responsibility or at least is “activated” at short notice?

Successful handovers are often planned eight to ten years or more in advance, because ideally, the senior and successor should run the company together for several more years. Ideally, there is a well-thought-out, structured and objectified decision-making process that leads to a regulated succession solution from the perspective of all stakeholders. Should there be family-internal options for succession, these candidates must be handled very carefully in the development. Education is the foundation, grooming occurs afterwards with work experience. In the case of several candidates from different family / shareholder strains, one should, of course, ultimately the best candidate should win – the “thickness of the blood” should not be decisive. The question of whether and which candidate in a family is best suited to lead the company or to accompany it as an active partner is one of the hardest to make. Many families have broken apart over such a decision. Apparent non-suitability or obvious outstanding aptitude are still relatively easy to judge – even for fathers. But it becomes extremely difficult when it is necessary to distinguish between “still suitable” and “just not suitable”. Even successors can indeed grow into larger functions and develop, but “entrepreneur genes” are unfortunately rarely inherited. An external moderator, be it the chairman of the advisory board or an independent consultant, can play an important role in such decisions, providing some objectivity, and attempting to moderate or resolve alleged family conflicts.

In addition to considerations of protection and provision, financial and legal aspects of succession should not be neglected. Depending on the current company valuation, a potential successor may have to expect significant transaction costs (taxes, costs for (legal) advice, etc.). In addition, it makes sense to develop a long-term family strategy at an early stage, which reconciles the interests of family and shareholder responsibility and forms a framework for successfully transferring the company to the next generation. Company values and objectives, but also requirements for a successor, should be written down in a family and corporate constitution.

In the end, the difficult process of generation succession remains one of the key challenges that entrepreneurs should consider as a high priority, personal task. The timely initiation of the process, the comprehensive involvement of all participants, open communication as well as the use of external support and advice can have a very positive influence on a successful generation succession.

cbu_middleActively Managing Succession

The role of supervisory bodies in succession planning for CEOs
by Dr. Christian Bühring-Uhle

Each year, roughly 10-15% of CEOs are replaced, which corresponds to an average retention period of no more than seven to eight years. Although this is not only an exceptionally important, but also an inevitable task, most companies are not prepared for it. In the United States, shareholders can force the Board of Directors to create a succession plan by litigation; yet a survey in the US revealed that in 50% of companies the Board of Directors was not prepared to appoint a successor in case of need. In 40% of companies it was stated that there was not a single suitable internal successor. This does not appear to be too much of a concern, as time spent on succession issues averages just two hours a year. One of the most important tasks of the supervisory body (be it the Supervisory Board or the Advisory Board) is to ensure that the company is managed in the best possible way, i.e. that the person at the top meets the current – and in particular the future – requirements for the management of the company to the fullest extent possible.

This means that the supervisory body must not only coach and supervise the man or woman at the top of the company and know when it is time for a change at the top. But also, that the supervisory body must in particular ensure and take precautions that any change at the top, whether regular or unforeseen, will lead to the optimal appointment for the future of the company. This responsibility for the sustainability of the company is perhaps the most important task of the supervisory body. In particular, the Chairman of the Supervisory Board has a special role and responsibility here. Unfortunately, the reality is all too often different, because especially when dealing with succession situations, serious mistakes can be observed time and again – sometimes with fatal consequences for the company.

Of course, we also know positive examples from our practice. For example, more than a year before the CEO’s earliest possible departure, the Chairman of the Board of Directors of a larger, listed company asked us for a proposal to accompany his successor. However, we are also aware of many cases in which CEO successions were simply not prepared and planned for, particularly in the SME sector. Quite often, even the most significant medium-sized companies have no supervisory body at all and thus no one to help the long-serving chairman realise that a real “entrepreneurial achievement” is only complete once the handover has been successfully completed.

In order to do justice to this issue, it should be borne in mind that this is not a one-off event, but a continuous process that has a strategic component on the one hand and is an important cornerstone of the risk management function incumbent on the supervisory body on the other. It is generally assumed that, all else being equal, and especially in larger organisations, an internal succession is superior to external solutions, partly because an internal successor knows the company (and its market, competitors, etc.) better and can be systematically prepared for the CEO role. And indeed, at least in larger companies, succession is often solved internally.

The hoped-for advantages of an orderly handover can only be realised in a reasonably reliable manner if continuous work is carried out over many years to ensure that as many suitable candidates as possible are groomed and available. A really suitable candidate for the top position does not grow by him- or herself, especially since the new task will often require completely different skills and personality traits than the qualities that the internal top performers have relied on so far.

However, due to their size and the available organizational and financial resources, many small and medium-sized companies are unable to keep succession candidates in the company. This applies not only to CEO candidates, but frequently to all management functions.

A supervisory body can only fulfil its task if it actively manages the issue of succession and devotes a substantial part of its time and attention to the future, ideally the greater part of it, instead of remaining preoccupied with the status quo and familiar faces. Nor can the supervisory body leave this task to the current job holder. If the long-time CEO attracts a “crown prince” according to his own taste, and possibly changes to the top of the supervisory body even after handing over the staff (which is still frequently observed today), then it should come as no surprise that at some point the company is no longer able to cope with changing conditions. In addition, there is the danger that the former chairman will then morph into a “back-seat driver” and steer the fate of the company from the supervisory board. In these cases, our experience is that when a strong successor to the CEO senses such a constellation, he usually doesn’t even come aboard. The other danger is that a not-so-strong predecessor (occasionally to be seen in family businesses) will immediately look for someone ‘tame’ – or someone even weaker than himself.

A few practical recommendations for owners and supervisors:

  • It is advisable to discuss in detail, document, and update at regular intervals the requirement criteria, the process for regulating succession and the “talent pool” of short- and medium-term candidates. The bar should be set high, especially with regard to the competencies required for the top position. Developing these suitability and experience criteria is as important as it is challenging.
  • The current CEO plays a particularly important role in building up the candidate pool but must not monopolise the process. And the members of the supervisory board must also get to know these people and develop their own “connection” to them.
  • Even if the size of the company allows working systematically on internal succession planning, it is often advantageous to include external candidates in the recruitment process as well. This not only widens the selection and increases the prospects for “fresh blood”, but also because an internal successor who has prevailed against external candidates will have better “credibility” when tackling his new task. But there is also a danger – that internal candidates could be demotivated. Such a two-pronged approach must therefore be carefully managed and moderated and requires a great deal of experience and tact.
  • Of course, good succession management requires a high degree of confidentiality. In practice, this is more often disregarded than one would think. Increased vigilance, especially on the part of the chairman of the supervisory board, is indispensable.
  • Particularly in the case of external appointments, care must be taken to ensure that the new hire at the top is smoothly integrated into the new position (and possibly the organisation).
  • Last but not least, there must be a (concrete!) contingency and interim plan if the CEO “fails” unexpectedly and on short notice (for whatever reason).

If these recommendations are heeded it is quite possible that crises can become opportunities, because one thing is clear: the only constant in life – also in the life of companies – is change.

avspecht_middleA little more than just gut feeling…

Competence-based assessment and evaluation of successors and managers
by Andreas von Specht

The entrepreneur owner of a medium-sized business sat opposite us and was somewhat perplexed. He had recently spent almost three hours, again, with a candidate for the management of his business. It had been a very nice, pleasant conversation – and the candidate had left a solid and dynamic impression throughout. The entrepreneur finally ended the interview and thought to himself: “Basically, I’m just as smart now as I was before. Is this really the man I want to entrust with the second most important function in my company? How exactly am I supposed to determine whether he really can do that or whether he is just a well-trained candidate?” The candidate was nice and sociable – but of course he knows for himself that this alone is not enough. But what are the objective criteria by which he should judge an outstanding executive? What central questions would he still have to ask in the next interview in order to arrive at a more in-depth assessment? And how can he actually tell whether the candidate also has the potential one day to become his own successor as head of the entire company?

We encounter these questions more frequently. In honest moments they are also asked openly – and sometimes you notice rather intuitively that even experienced company managers are pondering this question. This is especially true of entrepreneurs who frequently make internal personnel decisions, but relatively seldom recruit executives from the market.

Many decision-makers go into such conversations having acquired many years of experience, a good portion of common sense and a pronounced gut feeling. This is good and right, after all, one has to find out whether, for example, a successor candidate fits into the special cultural network of one’s own company. However, purely intuitive evaluations are frequently strongly distorted, and the evaluator risks falling into one of several traps. A few perceptual distortions as examples: the so-called ‘halo effect’: how the evaluation of a candidate is generalized on basis of a very positive impression in a specific situation afterwards. This effect also works exactly the opposite way when a critical first impression pulls the whole assessment down at a later time (the ‘horn effect’). Or there is the ‘hierarchy effect’: in the evaluator’s mind, in which candidates with higher hierarchical standing are automatically judged better – according to the concept of “Once a Board member, always a Board member”. Many evaluators can be overly influenced by the very first impression, which then colours the entire evaluation. The list of possible distortions of perception is longer still. Imagine an aspirant for a partner position in a conservative private bank, who enters the room with white tennis socks under too short suit trousers. Will an assessor be able to get over this initial visual perception later in the conversation?

Judgments are therefore extremely prone to errors. Insofar also a first recommendation reads to take itself with very important evaluations from other humans sufficiently time. It happens frequently that decision-makers decide already after ten minutes that a high-level candidate unfortunately does not fit. Even more astonishing, however, is the alleged ability to decide after a half-hour discussion: Yes, that’s a fit! We, as consultants specialised in the assessment and evaluation of executives and entrepreneurial successors, cannot do that at any rate.

We recommend that our clients set the bar as high as possible for the desired “fit”. This does not imply searching for the famous needle in a haystack or a “unicorn”. But a decision-maker should be clear in his mind beforehand, both when evaluating the performance of his own management personnel and when recruiting externally, which criteria he would later like to apply. When we once asked a raw materials trader in Hamburg what the most important criteria for him for the external search for his successor was, he told us: “Of course, he has to be able to show a little bit of something – but above all he should not steal, if possible”. Above all, assessors need methods that reduce the susceptibility to errors previously shown. Competence-based interviews are one such method, and we are convinced that they are the best method to have been developed over the last 20 years.

Competences are reliably measurable for the trained assessor and represent a good indicator of present and future work performance. Some companies have developed very complex competency models with 30 or 50 individual competencies. However, it is already possible to very precisely assess senior managers with roughly 8-10 core competencies. These core competencies can be divided into entrepreneurial and social competencies.

There is hardly any selection process for an entrepreneur succession in which the demand on candidates, above all to be very “entrepreneurial”, is not explicitly formulated. But what exactly does that mean? When is someone entrepreneurial? And when are they more likely not? The most important entrepreneurial skills are certainly consistent result orientation, strategic thinking and change management, including the ability to take reasonable risks. Of course, professional competence and market knowledge are also required, but an entrepreneur certainly cannot do without high levels of the first three core competences. This describes the “hard side” of the coin; additional social skills must be examined, i.e. the “soft side”. Important social skills are in particular leadership skills, employee development and team orientation, but also, for example, the important quality of customer orientation. And imagine a manager who operates globally in many markets, but who unfortunately is not “cross-cultural” – and in Asia, for example, “like a German tank”, he flattens everything. Strategic foresight or the ability to change is quickly neutralized.

In the final selection, but above all in the weighting of individual competencies, it also depends on the specific company situation and position. In the assessment, the competencies are not rated on an absolute basis, but scaled on a relative basis. Each individual competence can be divided into different “activation levels”. If a competence is not particularly pronounced (i.e. the pronunciation is in the lower range), a manager is more reactive. Then terms such as “he understands”, “he tries”, or “he tries to avoid mistakes” appear more frequently in the assessment. Managers who show very high levels of a particular competence are “pro-active” in this area. Then they are not only “understood” and no longer “applied”, but “developed”. Not only “tries”, also no longer only “actually achieved”, but “surpassed”. Managers with such high competence characteristics can usually also inspire, lead and motivate others to peak performance. In a competence-based interview, behaviour in the past is examined in order to obtain an indicator for future behaviour. The “what” plays less of a decisive role than the “how”. So not only the “What did you do?” is questioned, but also the “How did you proceed?”, “How did you achieve the result?” or “What exactly did the result look like?”.

At the end of a competence-based assessment, there should also be a comprehensive reference process. No one can give as authentic information about a candidate’s team behaviour as former team members; or assess how direct leadership felt like former employees. Above all, however, former superiors or chairmen of advisory boards should have their say when it comes to the question of whether a candidate, for example a subsidiary, has really developed sustainably. But beware: the process of obtaining references also needs to be practised. According to surveys, 90% of all reference providers undertake to make a positive assessment before a reference interview.

So, can the medium-sized entrepreneur, who finds it so difficult to assess his potential successor, still be helped? We believe so. As in other life situations, a good mixture is important: A technically sound, competence-based interview process, backed up by comprehensive reference statements – and in the end also a dash of intuition and gut feeling.