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While every family-owned business is unique, the challenges they face are often strikingly similar. How do you keep family conflict from affecting the business? How do you ensure the next generation of leaders have the same hunger for success that the first generation had in building the business?
One company that serves as a useful case study is JAB Holdings, privately owned by the Reimann family. Founded in Germany almost 200 years ago, the modern-day conglomerate is now based out of Luxembourg. Its largest subsidiary is Coty (the cosmetics company that produces Max Factor and Rimmel) of which it owns 38%. More recently, it acquired such iconic names as Panera Bread, Krispy Kreme, and Keurig Green Mountain.
The company’s growth shows no signs of abating. In January of this year (2018), JAB acquired Dr Pepper/Snapple for $18 billion. One German source estimates the family’s business empire to be worth more than $30 billion.
So how is a company founded in 1828 still relevant? JAB Holdings has structured the company in a way that protects it from many of the pitfalls that impact other multi-generational businesses. By doing so, they have become a shining example for other family-owned businesses that wish to emulate JAB’s track record of success.
A Long Time Ago
JAB Holdings traces its origins back to its namesake Johan Adam Benckiser who owned a chemical business in Pforzheim, Germany. One of Benckiser’s daughters married the chemist Ludwig Reimann, who eventually took over the business.
The company’s day-to-day operations were run by a Reimann all the way to Ludwig’s great-grandson Albert. Albert diversified by getting into household consumer products and other lines. Upon his death in 1984, Albert divided his company evenly, giving each of his nine adopted children an 11.1% stake. According to a recent sky news article, the inheritance came as a surprise.
“All they really knew was that each day, he worked at a chemicals factory in Ludwigshafen called Joh A Benckiser. They had not known that he owned it.”
An Inheritance With Strings Attached
Albert Reimann knew that if his company were to survive beyond him, there would have to be certain rules in place. In his will, he stipulated that his heirs could not sell shares to anyone outside the family.
In doing so, he protected the company from a difficult situation. When there are multiple heirs, some naturally have more of an interest in the family business than others. For those with little interest, the temptation is to sell their stake to the highest bidder and ride off into the sunset. This can leave a tricky ownership situation for family members who want to carry the torch. Through his will, Albert Reimann nipped this potentially dangerous scenario in the bud.
Currently, only four of the original nine hold shares in the company.
Another common family business trouble spot revolves around the question of succession. Which of Albert’s heirs would step in and run the business in his stead? Once again, he sidestepped by adding the condition that none of his heirs could have a hand in managing the business. They would need to rely on an outside management team to handle operations.
The original non-family member to take over was Peter Harf who joined the company in 1981 and remains with JAB Holdings to this day. He has since been joined by Olivier Goudet and chairman Bart Becht. This triumvirate is the nerve centre of the business and it was under their leadership that the company got involved in the coffee and tea industries.
“The world of coffee and tea is still not fully consolidated, and neither is the beauty business. You don’t have to be an Einstein to find acquisitions,” Becht told Handelsblatt Global recently.
By separating the management and ownership of the company, did Albert Reimann not inadvertently set up a potential conflict? What if the management team makes risky decisions hoping to strike a huge score? Again, the answer is to be found in Albert’s will – the management team is required to invest their own money in the company.
“The family delegates responsibility but also makes sure that their interests and our interests are perfectly aligned. Our money is in this too– that reassures them that we won’t do anything stupid,” Becht said.
A Formula with Amazing Results
Not only does the arrangement prevent them from making careless decisions, it frees them up to take a longer-term approach that publically owned companies required to provide quarterly reports simply cannot.
One example is JAB’s recent acquisition of the Proctor & Gamble-owned haircare brand Wella. JAB Holdings were in competition for Wella with Henkel, another German company. What won it was their proposition to buy out 43 other P&G properties and structure the deal in a tax-friendly manner for P&G. By doing so, JAB hurt their own share price and suffered losses in the short term, but set the stage for greater gains over the long haul.
Not many other companies have the stability and structure to make those kinds of deals, as Becht noted. “We do have an enviable amount of freedom, uniquely so among German family-owned firms,” he said.