GERMAN FIRMS have, like their country itself, a reputation for being staid. Look closer, though, and many brim with intrigue. Albert Darboven, a coffee tycoon, pushed his own son Arthur out of JJ Darboven and tried to adopt a friend as his heir and successor. The five children from the first marriage of Rudolf-August Oetker, grandson of the eponymous founder of a pudding dynasty, and the three offspring from his third have been at each other’s throats for years. The feud among the billionaire scions of the Tengelmann retail empire led to speculation that Karl-Erivan Haub, the group’s fifth-generation CEO, faked his own death in a skiing accident. This month his brother, Georg Haub, reportedly withdrew the application to have him declared dead.
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Apart from ripping families apart and tearing down reputations, such feuds destroy shareholder value—including that accruing to the warring clans. Hermann Simon, a management consultant to many powerhouses in Germany’s Mittelstand of medium-sized firms, says succession is their biggest problem. Families that quarrel risk a split, a sale to a rival or bankruptcy. With early planning and discussions many rows could be avoided. Yet most founders prefer to keep their options open. And few wish to contemplate retirement.
Dynastic dissonance
More than 90% of German firms are family companies. Unusually, that includes many multinationals across a range of industries: appliances (Miele), carmaking (BMW, Continental and Volkswagen), chemicals (Henkel), engineering (Bosch, Heraeus, Knorr-Bremse), food (Oetker), media (Bertelsmann), medicines (Merck) and retail (Aldi and Schwarz, which owns Lidl grocers). Fully 30% of companies with more than 500 employees are in the hands of their founding clans.
The profusion of family companies is partly a function of inheritance tax. This has historically been high in America and France but modest in Germany—and, crucially, waived for heirs who keep their family business running for at least seven years, and protect jobs and wages. Another explanation is culture. Whereas Americans admire self-made men, Germans respect old money. Neureiche (newly rich) are dismissed as arriviste vulgarians.
Whatever the reasons, the upshot is ubiquitous strife. For conflict is built into family businesses, says Arist von Schlippe of the Wittener Institute for Family Companies, a think-tank. Each is a paradox, he says, combining the inclusive logic of a family with the selective logic of business. As an example, he recalls advising a founder who wanted each of his four sons to inherit one-quarter of the family concern, while also encouraging all of them to strive for the qualifications to become its next boss. That is a recipe for discord.
Succession is easier when there is only one descendant, or when others show little interest in business. It gets complicated in dynasties with plenty of children from multiple marriages. Ferdinand Piëch, a former boss of Volkswagen Group and grandson of the carmaker’s founder, Ferdinand Porsche, had six daughters and seven sons from three marriages and a couple of liaisons. Ever since Piëch died in 2019 his 13 children have been fighting in court with his last wife. An estimated €1.5bn ($1.8bn) in family wealth is at stake.
The trickiest succession is from the first generation to the second. If a family can pull that off without bad blood, subsequent handovers are likelier to succeed, says Kirsten Baus of the Institute for Family Strategy, a think-tank in Stuttgart. In America 70% of family firms fold or get sold before the second generation gets a look-in. Just 10% remain privately held going concerns into the third generation, according to a study in the Harvard Business Review. In Germany 16% of small or medium-sized companies say that they will probably close down when the boss retires (though this does not count firms that go bust). Most would like to stay in the family but are unable to persuade a relative to take over.
Conflict is often not chiefly over money. Relatives spar because they have different aspirations for the business, or feel they are being mistreated. Arthur Darboven was pushed out by his father, and stripped of a part of his stake. Among other things, Mr Darboven reportedly disapproved of his son’s launch of a racy new brand called Coffee-Erotic. At the age of 83 Albert Darboven remains at the helm of his firm. (After a court denied his adoption strategy, he is reportedly pondering creating a foundation to control the firm.)
To avert such to-dos, some clans organise an annual family day, holiday camps for their youngsters and even dedicate a house to family reunions, often the home of the founder. Most also draw up codes of conduct, says Herbert Wettig, an adviser of family companies. The 680 members of the Haniel clan (who until recently owned Metro supermarkets) have an 80-page code, which stipulates that no family member can work for the company, not even as an intern. The Reimanns, billionaire owners of JAB, a coffee-to-cosmetics group, have a similar rule. The Trumpfs have a code that covers succession and the sale of shares in the firm, but also includes guidelines for religious tolerance, modesty and respect for others.
No charter is foolproof; the Oetker codex did not stop them clashing. Some families unable to find agreement decide to sell out or, if they are large enough, go public. In 2017 Wirtgen, a construction firm with annual sales of €3bn, was sold to John Deere for $5.2bn. The founder’s sons worried they would be too old to run a company by the time their children could take over. After falling out bitterly with his only son, Heinz Herrmann Thiele listed one-third of Knorr-Bremse, the company he built into a leading purveyor of train and lorry brakes, on the Frankfurt stock exchange in 2018. He and his daughter raked in €3.9bn with the flotation.
Or quarrelsome clans can go their separate ways. Some of corporate Germany’s biggest names are the result of break-ups. A fight between the shoemaking Dassler brothers led in 1948 to the creation of Adidas and Puma, each of which now makes pricey trainers. A feud in 1960 between the Albrecht brothers over whether to sell cigarettes also resulted in a bifurcation: Aldi Nord operates in northern Germany and a number of other, mostly western and central European countries; Aldi Süd covers southern Germany, remaining parts of Europe, plus Australia and China.
A split may make sense for groups with diverse interests, says Klaus-Heiner Röhl of the German Economic Institute, another think-tank. But it weakens specialist firms of the sort that populate the Mittelstand. The latest generation of Aldi Nord heirs has fought over money and power for a decade. The row is preventing a sensible re-merger of the Aldis. Never mind that it would help both businesses. ■
This article appeared in the Business section of the print edition under the headline “Mittelstand-off”
Source: Business - economist.com
