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News: Merck Group wins IMD-Lombard Odier Global Family Business Award

Merck Group, the Germany-based pharmaceutical and chemical company, was awarded the 14th annual IMD-Lombard Odier Global Family Business Award in October in recognition of the business' pioneering spirit and encouragement of the next generation.

The company, which has roots dating back to 1668, is the oldest in the chemical and pharmaceutical industry. Today, Merck employs 33,000 people in 60 countries and recorded 2008 revenues of €7.6 billion.

The award judges were particularly impressed by the duration of the family's ownership of the company, its strong family values and its focus on establishing an owner identity in the next generation.

"Merck is an extraordinary example of long-term leadership which has adapted to geopolitical changes and competitive global environment over 341 years and 12 generations. Their harmonious balance of family values, exemplary governance and business performance drives their long-term success", said IMD President John Wells.

In accepting the award, Jon Baumhauer, chairman of the family board and 11th-generation family member, highlighted the strategy that has enabled the family to reach its 12th generation of ownership.

"Business comes first – the Merck family members, totalling today 217 members representing the 10th, 11th and 12th generations, see their role as that of trustee with a clear objective to pass the group onto the next generation enriched and enlarged," he said.

To enable them to do this, the family has created a strict structure that attempts to marry the three forces of family, business and ownership. Merck is officially organised as a corporation with general partners (Kommanditgesellschaft auf Aktien or KGaA as it's known in Germany).

The family owns around 70% of the business through the general partner (ie, parent company) E Merck KG that, through a Family Board, defines the basic strategic direction of the Merck companies in their entirety, makes the entrepreneurial policy decisions for the Merck Group as a whole and has unlimited liability for the company's creditors.

However, there is a strict separation between family ownership and management. "The business is controlled by the family but run by the most competent managers we can find, family or not," said Baumhauer. "Family members are welcome if they are talented enough to join the company but we have no rules that there has to be a family presence on the executive side."

A Board of Partners, which includes five family members and four external business leaders, is elected by the Family Board and is comparable to a Supervisory Board in other companies.

It decides on the appointment and dismissal of members of Merck's Executive Board, which it also monitors, approves significant transactions, particularly major capital investments, and adopts the annual financial statements of E Merck KG.

The Executive Board is responsible for the management of the E Merck Group. It executes resolutions passed by the Board of Partners and the Family Board and comprises the chairmen of the Family Board and the Board of Partners and their deputies, the chairman of the Executive Board, the chief financial director and various elected members.

A key component of the Executive Board is that the family remains adamant that executives should feel the ups and the downs of the family owners.

Consequently, each member of the Executive Board retains a personal, unlimited liability, but gains the chance to become equity shareholders (to be sold back to the family when retiring).

"The non-family senior executives are like temporarily adopted family members. They belong to the paternal, entirely family-owned company in their own rights and have a different, stronger moral contract than in a non-family business," explained Baumhauer.

A General Partners' Meeting is comparable to the Annual Meeting of a listed corporation; it receives the reports of the other bodies, elects the members of the Family Board, decides on changes in ownership structures in Merck KGaA, capital increases and contract amendments.

 In 1995, the partners decided to enable external shareholders to invest in the company, which led to the public listing of Merck KGaA. According to Baumhauer, the IPO was: "a healthy cultural shock. It is good to be under the supervision of the public and to be judged against benchmarks of other companies. Otherwise, you can be led to complacency." Today, shareholders hold the 30% of the total capital not belonging to the family.

While many families remain cautious of involving "outsiders", Merck has not outwardly suffered from its listed status. Despite the global recession, the Group announced in October that total revenues rose 2.7% for Q3 on the same quarter in 2008. First half results for 2009 were described as "steady" although the group's gross margin declined by 1.4% to € 2,781 million.

It's not all about the figures, however. To help keep the family together, there is a family intranet, joint ski trips, private family parties hosted alternately by family members and an in-house magazine, Merck'sche FamilienNachrichten (Merck Family News), which keeps the whole family up-to-speed on what's happening in the business.

All the above is a modern demonstration of family values first put forward by Magdalena Merck, the wife of eighth generation Emanuel Merck, who established "family rules" for the first time. The family and business values were developed over time so that today they are identical.

As the family basks in the glory of the family business award, it is also planning ahead to welcome the 13th generation. There is a continuing education process for all next generation members that includes training, research, field trips and intra-generational dialogue. 

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