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Dr. Frank Stangenberg-Haverkamp, head of the German |
'We are not owners, trustees,' chairman says
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What is the driving force behind Merck's longevity and prosperity?
The origin of German pharmaceutical and chemical company dates back to 1668 in Darmstadt, making it over 350 years old.
The global firm is one of DAX 30 firms, big firms that are quoted for German stock index.
I recently tried to find an answer during a longer-than-one-hour interview with Dr. Frank Stangenberg-Haverkamp, leader of the conglomerate.
Initially, I felt tempted to say that it was a unique governance structure but concluded that this only partially explained it. The real answer was uttered by the interviewee toward the end of interview. "We don't own the business. We are just trustees."
"You need a mindset of austerity, you have to save money and you have to live for the company."
Stangenberg-Haverkamp is the chairman of the Family Board and heads the Executive Board.
The company's governance structure needs some explaining because it is unique by any corporate standard.
Merck is basically a family business with only 30 percent of it listed. So there arises the need for the Family Board, composed of family members, that oversees their interest and gets involved in big decisions which can affect their stake.
Then, the Board of Partners is composed of five family representatives and four outside members, and controls business operations.
The beauty of this dual system prevents the owner family from dictating the terms of management for their interest alone and accommodates outside scrutiny.
A system can be perfect but the devil is in the people, who can run it into ground or make it a success.
The "trustee mentality" that the Family Board chairman refers to is the very linchpin that makes an amazing corporate example out of Merck.
That also boils down to one cardinal principle ― a willingness to play by the rules, according to the chairman, 65, himself a scion of the founding family.
"I personally favored listing the firm," he said, citing the additional outside scrutiny it would entail from the media, stock exchange, analysts and banks.
Merck was listed in 1995, a decision made as the result of strong growth that was also accompanied by debt.
The listing was seen as a landmark in the company's history, resulting in an eight-fold growth in turnover to 11 billion euros and a quadruple increase in employment to 40,000. Plus, it is now debt-free.
Forward-looking but realistic
The chairman appears to be growth-oriented but with a healthy dose of balance.
"I would rather own 60 percent of a firm with a turnover of 20 billion euros than 70 percent of a firm with 11 billion euros," he said.
In other words, the firm could go to the stock market to acquire the right target but any such decision would be carefully considered because if the family surrenders any stake, it would be lost forever.
"We are in four areas and we will not enter a new field," he declared, adding that Merck is open to making an acquisition, perhaps in the consumer health or over-the-counter field. He made clear that nothing has been decided and the firm is capable of making a sizable purchase without hurting its current cash flow.
Merck's four areas are consumer health, cover biopharmaceuticals, high-tech chemicals and life science tools.
They are interconnected with each other in one way and complement each other in another.
This focused portfolio makes it possible for the group as a whole to weather cyclic ups and downs facing one component firm or another.
Transparent
Himself included, the chairman says no family members are entitled to inherit a job at the firm.
"A smell of nepotism!" he said. Merck's owner family numbers about 250 people with 153 holding stakes.
He said that even scions have to prove they are capable outside Merck first.
"If you are a private company, you may do it at your own risk," he said. "But for a big listed firm, it would not be possible under the German corporate governance regulations."
When compared to chaebol inheritance practices, he further went on to say that ownership and management should be separated but with rare exceptions.
"Sometimes the owners can be good managers," he said. "Otherwise, leave it to the professionals."
He metaphorically compared it to the Samsung chairman sending his son to LG, asking the rival firm to give him a hard time.
And it would be about him getting out, experiencing the real world and coming back as a capable man.
