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Pragmatism wins out in Porsche/Piech family feud

The very public dispute between the Porsche family, owners of Porsche, and the Piech family, who control Volkswagen, may soon be coming to an end, in business terms at least. An announcement made by Porsche yesterday stated that the two companies are "in advanced talks" over the disposal of the cash settled options used by Porsche to build up a stake in VW. This is the clearest sign yet that a merger is finally coming to fruition.

However, the question of how the family will move forward from their disagreements still remains.

Wolfgang Porsche (pictured left), chairman of Porsche and Ferdinand Piech (pictured right), chairman of VW, are cousins. They are both grandsons of Porsche founder Ferdinand Porsche but they have been locked in a power struggle since Porsche attempted unsuccessfully to takeover VW in a battle of David and Goliath proportions. Now, in a dramatic turnaround of events, Porsche is looking to VW for help to ease the €10 billion of debt the luxury carmaker built up attempting to take over its larger rival.

"I think from a business perspective it makes enormous sense to go ahead with the merger, due to the relatively small size of Porsche," Joachim Schwass, professor of Family Business at IMD business school, told Campden FB. "The problem, however, is on the ownership side. Here you have two cousins who have very opposing views of who should be in charge and that has lead to the current situation."

It is clear now who has the upper hand in the family dispute. "The ideal situation in a family business is to try and find winners on both sides, but here the situation has been so difficult that there is one winner and one loser. The outcome is that the Piech branch is now dominant," said Schwass.

Whatever the past animosities, and there have been many, both families will have to put these disagreements behind them in order to move forward with the merged business. This does not mean though that the family rifts have been bridged. Schwass said: "I think there is a sense of pragmatism where families say look we are in this mess together so let's try and make peace as much as we can and try and find a practical solution, yet keep our distance as much as possible." He went on to add: "Industry wise there is no doubt this is a logical solution but family wise, the relationship will be extremely tense."

The feuds have been public and the casualties numerous. The most high profile of all was Porsche's charismatic and confident non-family CEO Wendelin Wiedeking, who resigned in mid-July to pave the way for the merger.

Wiedeking is credited with delivering Porsche from the brink of bankruptcy in the mid-1990s. "It is an amazing story of someone coming in and turning around a business which was on its way under before he came in," said Schwass. However, he was also behind the audacious takeover bid for VW that plunged Porsche back into debt. "His ownership vision of the small company gobbling up the large unfortunately brought Porsche back to a situation that he found it in when he joined it, so by logic he simply had to go," states Schwass.

The business sense for parting ways with Wiedeking was obvious, but this was not the only factor in his departure. His takeover attempt naturally did not sit well with Piech and according to one former Porsche executive Wiedeking and Piech became involved in "open warfare". Schwass believes: "Wiedeking was the price the Porsche family had to pay to gain some kind of peace with the Piech family – it was clear that he was not tenable."

Looking to the future it falls to the next generation of family members to rebuild family ties. "On the family relationship level clearly something has been destroyed, something has been broken. It is up to the next generation to see if they want to make peace and create stronger family unity," said Schwass.

Crucially, disputes cannot be allowed to linger and filter into the next generation. "Once you reach the cousin stage conflicts are inherited down to the next generations, and branches will continue feuding in the future even though they are not at the origin of the feud. So the likelihood is it will be very tough for the family in the future to maintain a positive and friendly relationship with other family members," concluded Schwass.

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