Throughout the Rothschild history, the group seems to emerge stronger and more innovative from every crisis and challenge. What makes Rothschild stronger after every big hurdle?
I do not think that there is an easy answer to that question. I do not know how long this will last and whether it is in the genes of the family, but we have a great sense of solidarity and loyalty. Yet, we are not naïve; in every family, we like some people more than others. But I think that when there are important events, there is a sense of ‘we should all help one another and stay together’.
The second point is what happens when a family name is “over the door”. When the brothers, the sons of Mayer Amschel, left Frankfurt and established themselves, they operated in a partnership with absolute legal and financial solidarity. I think when you have a family that identifies with their business there is a sort of natural instinct or obligation to do what is good for the brand. But at the end of the day, family solidarity mostly comes down to the love between family members. And when we combined this affection with an element of reputation, it made us extraordinarily sensitive and perceptive of trends, reactions, attitudes, and comments that could help the firm, and this still applies today.
Your ancestor, Mayer Amschel Rothschild, expanded and internationalised his business through sending his sons abroad. Nowadays how do you regulate succession?
There are three aspects to succession. First, it is common knowledge, that at one time, women were barred from coming into the business. In my opinion, if we had an objective measure of the intellectual capacity of the Rothschild family members from our origins to today, we would find there was as much talent or possibly more with the Rothschild women as with the men. The only explanation that I have for the barring of women in the first three generations is that by definition a woman may get married to someone outside the family. If the new husband wants to come into the business you can involve him in it, but over time, Rothschild would be diluted. I think this was behind that decision. Now was it a good one or not I do not know. Today, this has of course completely disappeared. The candidates for succession in the Rothschild family are by definition male and female. And I think this is important.
The second point is that no one in our family is forced to join the business. I am blessed by the fact that my son, who is 29 years old, Alexander, has joined the firm recently. He first wanted to find out what finance was. He worked five years externally and only then said that he would like to join. I spoke to him and explained the responsibilities, but I also said again, that if he felt suddenly that he had another vocation that should by all means follow it.
The third element is that you cannot have a 250-year history without competent people. Just because he or she is of the family does not guarantee a position at the top. I would much rather see the family stay as the main shareholder with the chairman being a non-family member than loose our reputation for excellence. This is the fundamental interest of our business. Therefore, I am constantly concerned with surrounding myself with the smartest and the best performing partners I can find. Family members want to be the boss, which is normal, however, it is imperative to have good people throughout the organisation so we welcome people from outside our family. Senior management that chooses to work in a family
Senior management that chooses to work in a family firm likes the concept; otherwise, they would not choose this career path. There is stability when they join because they do not compete with me. They see a Rothschild chairman as an advantage – an asset and not a liability because it means that the brand is personified. Therefore, in high-level relationships, which is what investment banking is about in fact – meeting people, talking to people, and gaining people’s trust – this represents a key strength.
Rothschild has the reputation all over the world, for providing reliable information. Do you think the family business factor is still the strongest aspect in customer trust?
The family-owned company is a company not listed on the stock market. Investor confidence is an issue that we have to deal with very little compared to listed banks. But why do customers trust us? It is partly the family reputation and history, but it is mostly longevity. People like the concept of longevity. 250 years of existence do speak for themselves.
But in my view, it is deeper than that. Longevity is credit; not to me but to my ancestors. However, I think the reason we do well, and this has been years of work, is because we have assembled high-level, intelligent, proactive employees. We are not purer, better, or more respectable human beings than others, but we know that we need to protect the reputation of the firm. The fundamental reason for this is that our reputation is our strongest asset. If customers really find a good team that does a good job, the positive effect of this is of the same magnitude as if we could provide vast finance or other tangible assets.
In 2003, the UK and France branch were merged successfully and are now jointly managed. What challenges did you face in this undertaking?
There is a whole history behind the events in 2003.
In 1981, the French bank was nationalised by the socialist regime in France. So at the age of 40, with two other family relatives, and a limited number of senior colleagues, we started a new investment bank in France. Meanwhile, the English Rothschild house that had been in existence since around 1800, was still thriving. The French bank that was nationalised was a commercial bank. When we started anew in 1982 we decided that the future was in investment banking or rather advisory banking. The new bank included two core businesses, which are still relevant today: Firstly, providing high-quality advice to customers, and secondly, managing their wealth.
By the time we got to 1990, we were in a situation where the two Rothschild family banks, in England and in France, bearing the same name and the same brand, found themselves competing with one another. Not in their respective domestic markets, but the French bankers wanted to advise Spanish, Italian or German companies, which the English bankers had been doing historically. So we had to work out something that would be logical and, which would cater to the customer’s needs rather than to the egos of the bankers.
In the 1990’s, my cousin Evelyn who was then the chairman of the English Rothschild bank agreed to sell us a small stake in the English group. We then began a process of convergence. Not by changing legal structures but by slowly moving the business into a single unique firm. We defined how bankers would operate and put all of the European business into one single entity so that there was no competition and a common purpose. We had a clear vision and understanding that despite the different legal entities and family lines, we needed to work as a single brand. Our desire to be truly international gave us a strong imperative to organise ourselves coherently.
Did you find resistance on the employee’s part or on the family’s part?
No. Everyone perceived in the mid-1980’s that economies were going global. If you had international ambitions like us, the issue was how to organise yourself to best perform outside domestic markets. All staff saw each move as very positive for the business they wanted to develop. 2003 was the end of a process that had started a long time previously.
But it also happened to be a moment when my cousin Evelyn, wanted to retire. He sold his shares to the French family. We became the majority shareholders of the combined entities of the English and the French family. Of course, this while retaining Evelyn’s children as big shareholders of the group. We remain an Anglo-French institution, which is part of our genes, part of our DNA, part of our culture, and we operate as a united firm.
How did you emerge from the recent financial crisis? How does your group view the whole situation today?
First of all, let me make a very important comment: I do not like bankers who say ‘I have done well and others have done badly’. It is the wrong attitude and I think it is inappropriate. We all have suffered from the crisis, absolutely all of us. Why have we suffered less or why have we done relatively better? For one simple reason: as a family business you want to last as long as you can because there is a sense of pride, there is a sense of protecting your financial interest. This means that the enterprises you are going to embark on are of generally lower risk. And you are going to deliberately accept lower returns in euphoric periods in order to achieve the goal of longevity.
We have three areas of business, which illustrate our ethos. We are probably one of the leading firms in the world in helping clients renegotiate their debt with their bankers and helping clients to attain more stability in difficult periods. We provide advice not only on debt restructuring, and on balance sheets, but also advice on strategy, acquisitions, divestments and equity financing among other areas. Our second business is looking after private clients’ wealth. We focus on they can maximise their wealth and at low risk. Finally, we do something called merchant banking, which you would probably refer to as a private equity fund. Some of the money in this fund comes from our firm, some from our partners, and many of our senior staff have invested in the funds as well. We mainly attract family offices, entrepreneurs, and again, individuals who recognise themselves in our culture, and in our style. We call it merchant banking because we are not competing with the private equity firms; we are not going to acquire businesses and run them. We take large minorities in businesses and therefore we are present without the obligation of running the companies. We chose the partners we would like to get associated with, we trust them with managing the business, and we obviously think of an exit strategy.
So that is the philosophy of our bank. As a consequence, our balance sheet business, which is a very limited structured lending activity that we still have in the UK, is extremely small in comparison to the balance sheets of the big banks with big loan exposures. Therefore in this crisis, being less leveraged through having a smaller balance sheet and therefore a lower risk, we have done better. However, we all have been affected as, of course, we can only be active if our partners face a favourable business environment. So when our customers do less business, we do less business.
What geographical areas is Rothschild focusing on in the near future?
I believe that the world economy is still fragile. Of course, what we call ‘old Europe’ is still a core market. And as an economic consequence of what has happened recently, certain of our activities will naturally grow less quickly. There are macroeconomic shifts in the world, and in some places, we are extremely pleased with the outcomes and prospects for the growth of our business. Places such as Russia, China, Asia, South America, the Middle East, and a number of other countries. Also, India where right now over 20 professionals from our group are active.
The challenge for us is to expand to even more countries, which is difficult in spite of our large footprint. But in making sure that the culture of people we hire remains of high quality, we continue being able to give advice to our customers on international market opportunities. But I am referring to the mindset, and that one needs to be very lateral in one’s thinking. The challenge of the post-crisis world for people like us is the mindset of the world.
What areas do you focus on in your advisory work? Do you work a lot with family businesses?
You do not build a solid firm by focusing on what everyone is considering to be the ten biggest customers. We do big-capitalisations but also mid-capitalisations, which are still very large. Mid-caps are not GE or Siemens but they are businesses that are very well known in their sector, yet are often controlled by a family or by an entrepreneur. In other words, these businesses are owned by the same people that run them and are not just a huge elephant driven by stock market returns. We have very developed relationships with these people in personal life and business, which provides more stability overall. They trust us and, therefore, trust our counsel and trust us to manage their money.
And yet, size is not the issue. Investment bankers, if they want to have stability, need to have a larger customer base. And of course, we understand the way a family business operates; as we work with families across continents we have vast experience in that area through our own culture and that of others.
What is in the immediate and the long-term future for Rothschild?
The immediate future I think is to continue dealing with the crisis. We will remain an international, or rather multinational house with European origins. We want to grow across the planet in those areas that we selected. We will continue with our ethos of a limited number of businesses of the highest quality. What is the ambition? To be looked at by the outside world as the trusted adviser they choose to be providers of highest quality service and excellence.