Few businesses can hold a candle to Rothschild when it comes to keeping it in the family, writes Paul Golden.
Since the five sons of Mayer Amschel Rothschild started to build their businesses in Frankfurt, London, Paris, Vienna and Naples, successive generations have contributed to a business that has become as synonymous with family as almost any other.
Rothschild had moved from its earlier roles of handling the finances of royalty and statesmen, raising funds for governments, trading in gold and currency and investing in industry and mining, to the provision of banking and advisory services to the business community and the management of high-value assets, both corporate and individual.
Now with some 900 investment bankers scattered across the globe, the group has finally decided to invite an outsider to the top table, having no doubt first scoured the family albums for a suitable candidate, for the first time in its 212-year history. (Click here to read our coverage of the story)
Nigel Higgins, who retains his previous role of global co-head of the investment bank, has been with the family business for 27 years and will take over from seventh-generation David de Rothschild (pictured) next month. Fortunately for the new man, his big moment arrives at a time when business appears to be on an upswing.
Last year was a difficult one for Rothschild. Figures from Thomson Reuters indicate that it advised on more European M&A transactions than any other investment bank, but tellingly its 164 deals were worth $117.2 billion compared to Goldman Sachs' 134 deals with a value of $255.5 billion, while Citigroup had an average deal value of $2.6 billion. Internationally its $190 billion M&A business placed Rothschild outside the top 10 advisors.
However, Global Finance still voted Rothschild the leading investment bank in the global power sector, top M&A bank in Latin America and country winner (France) for 2009. These accolades, coupled with a number of new business wins in the first weeks of this year, suggest it will be advising on plenty more mergers and acquisitions over the next 12 months.
The bank will also hope to further increase revenues from debt restructuring and equity advice, having recently closed its first private equity fund, with income from these activities increasing by 7% in the year to 31 March 2009. It will doubtless also expect bigger numbers from Asia following the opening of an office in Delhi in late 2009.
As for the challenges faced by a non-family CEO, research conducted by Andrew Keyt, Joe Astrachan and Tim Blumentritt at Loyola University Chicago's family business centre indicates that business acumen, a strong board and comfort with family dynamics and values are three of the most important factors in determining success.
Given Higgins' length of service (he has worked for the family since 1982 and has been in joint charge of the investment banking business for the last decade) we can assume that his professional and personal qualities have already been fully tested, while the board's willingness to appoint an outsider in the first place suggest the new CEO will not be lacking support at the highest level.
The board might take further encouragement from the conclusions of the study "Finance in Family Business" by the University of Navarra's Miguel Galla and Alvaro Vilaseca from the University of Montevideo, who found that family businesses with non-family CEOs achieved higher returns than those with family members in the lead role.
Management guru Peter Drucker believes in order for family businesses to survive, one top job should always be filled by an outsider, even if there are multiple, capable family members already in management roles. His theory is that family chiefs who are not of the highest calibre fail to command respect and eventually drive out capable non-family members.
The decision to appoint a non-family CEO also has the effect of consolidating a leading Rothchild's influence on the business, with David de Rothschild moving to the newly created role of executive chairman. This move would have found favour with Drucker, who once wrote that succession planning "is essential to ensure continuity, particularly if there are family members interested in and capable of managing the business" – and de Rothschild's two sons are already established members of the bank.
So while initially it may seem this move to a non-family head marks the beginning of the end for the Rothschild family leadership of the bank, it actually strengthens the company's corporate governance and paves the way for a talented and hardworking family member to regain the helm in the future.