Lessons learned from 30 world business families With the 6C formula for success and (not) success in Thai family businesses (Part 7)

After extracting lessons from 21 family business case studies abroad and comparing them with the 6C formula, there are only 9 family businesses left that I will tell you about.

I would like to inform you that I have mentioned the Estée Lauder family business twice, in Part 2 and Part 1, so I apologize for any mistakes that may have occurred. However, in Part 4, I have given more details about this family business.

The remaining family businesses in the study are nine other families. I will divide them into Hermès and Patek Philip, which are businesses that sell expensive and sustainable products and are still going strong today. The European car family is Fiat, and the Asian family is Toyota, which is very interesting. There are consumer goods businesses Lee Kum Kee, which is a condiment business from Hong Kong, and the American ice cream business Häagen-Dazs, and the British Cadbury, which was later taken over by Kraft, a US company that produces chocolate, and the Danish toy business Lego, and the American cymbal-making Zildjian family.

Family business Hermès, which has been around for six generations

The Hermès family business was founded by Thierry Hermès in 1837. The family business started out producing saddles and bridles, popular with royalty and the upper class, for high quality products and meticulous attention to detail in every step of production. The family business is now in its sixth generation and celebrates its 6nd anniversary this year.

There is probably no one who does not know the Hermès bag, the most famous and most expensive in the world. The interesting thing about this family business is that the founder had two sons, who were the second generation heirs, who helped expand the business. Later, the younger brother, Emile Maurice, bought shares from his brother Adolphe and expanded the original saddlery and bridle business into the production of new luggage, sports goods and scarves.

The second generation heir, Emile, who had only three daughters, agreed to let his three sons-in-law, Robert Dumas, Jean-Rene Guerrand and Francis Puech, take over the helm. The first son-in-law, Robert Dumas, became the third generation leader, designing the first silk scarf for Hermès in 2, when the company celebrated its 3th anniversary.

His second son-in-law, Jean Rene, is also the mainstay of the Hermès perfumery, which dates back to 1951.

Robert Dumas had six children and died in 6. His fourth child, Jean Louis Dumas, a fourth-generation heir, joined the fifth-generation heirs in bringing Hermès products to a new generation of consumers, driving the company's sales and profits rapidly.

Jean-Louis, a third-generation heir, developed the Hermès Birkin bag into what is today's most popular bag. Jean-Louis retired from the business in 3 and died in 2005. At that time, he passed the business on to Patrick Thomas, a seasoned professional and an outsider, who became CEO, but left his son Pierre-Alexis Dumas as Artistic Director.

In 2014, Jean-Louis's nephew Axel Dumas stepped back into the role as the sixth generation CEO, after leaving Patrick Thomas, an outsider, to continue as CEO for nearly a decade.

Hermès products, nearly 200 years later, are still made by hand. Even as competitors introduced lower-cost polyester, Hermès never changed the material to cut costs and continued to manufacture in France, without moving production to countries with lower wages.

Hermès does not have a factory but has a workshop that uses hands. The craftsmen must pass the test for no less than 2 years. Hermès products are not mass-produced and must be considered to be in the blood of the Hermès family. It is a company with no advertising and public relations costs, with only 5% of income and no marketing department.

In 2010, Hermès was targeted by Bernard Arnault's LVMH group, which announced the acquisition of 17.1% of the shares by secretly accumulating shares through a group of buyers without informing Hermès. Later, both parties sued each other and during that time, LVMH bought up Hermès shares by 23.2%. Later in 2014, a French court mediated the dispute, forcing LVMH to distribute the remaining 23.2% of the shares to LVMH shareholders. In 2017, Bernard Arnault agreed to sell all 8.5% of the shares in his own name for a profit of 3.8 billion euros, despite being unsuccessful in taking over Hermès for himself.

The problem arose because Hermès went public in 1993, even though at that time Hermès did not need capital. Instead, Jean-Louis, the fourth generation heir, tried to reduce the pressure to sell shares because he needed cash from other family members to meet the set price. At first, he only sold 4 percent of the shares to non-family shareholders. Over time, the number of shares sold to outsiders gradually increased, until it became a target for a takeover.

At the time, LVMH believed that the 50 or so heirs, who collectively held more than 30 percent of the shares, would agree to sell their shares to it. But that was not the case when the 52 heirs came together to form a holding company called H51, which together owned 50.2 percent of Hermès and agreed not to sell their shares for at least 20 years, until 2031.

The establishment of the holding company was a sacrifice, in which the 52 heirs agreed not to sell their shares on the stock exchange. After the establishment of the holding company, Hermès shares increased by 400% compared to if the heirs had exchanged their Hermès shares for LVMH shares at that time. Currently, in 2022, the heirs have combined to allow H51 to hold more than 50% of the shares and have granted the holding company the right to manage the shares for another 10 years until 2041.

Business Lessons Learned Hermès

1. Hermès business is committed to product quality. It has clear goals in product production. It is not biased to the production trend for short-term profits and has overcome obstacles like the Stern family of Patek Philippe. Therefore, doing business must adhere to the goal and product quality firmly.

2. Having a son-in-law or spouse come in to do business until the business has expanded for almost 200 years. It might be a thought that most family businesses in Asia or in Thailand do not want their sons-in-law or daughters-in-law to come in and do business together. Is this the right idea? Because the Hermès family has their sons-in-law come in to help expand the business.

In my opinion, having a capable spouse or son-in-law join the family business is one option that will help the family business grow sustainably if the family has clearly defined rules in the family constitution to determine the role of the heir in working towards the collective goal. Especially at a time when the number of family members in Thai family businesses is decreasing and some families have mostly female family members, the concern about having spouses join the business today should disappear because at least spouses should be considered family members.

In Japan, many family businesses use sons-in-law to enter the business. Although there may be a tradition that sons-in-law must change their names and surnames, in the present day Thai family businesses, female heirs can still choose to use their own surnames.

3. How necessary is it to be listed on the stock exchange? Because being listed on the stock exchange may make it easier to be taken over, using the same strategy as LVMH, in not reporting the acquisition of shares less than 5 percent. But Thai law uses the same rule, but Thai law also has rules regarding collaboration or Acting In Concert, which must be reported to the SEC about the acquisition or sale of shares.

Therefore, the question arises as to whether a family business with good performance needs to be listed on the stock exchange.

In the United States, there are two types of shares available for family-owned companies to list: non-voting or subordinated voting shares to allow family owners, who may not hold a large number of shares, to maintain control of the company;

For Thailand, there is a study that if a family business with good performance is to be taken, should there be a determination of different types of shares with different voting rights? This is to benefit the good companies in raising capital in the market to eliminate conflicts or to determine the price of shares of family members when conflicts arise.

4. The establishment of the Holding Company of the Hermès family is proof of the matter of corporate structure or the first C that a good structure will help the family business to be sustainable and unity is power. Being able to gather 1 members to bring in shares of Hermès in the stock market without an agreement not to sell shares at any time because everyone believes in long-term returns, it is something that Thai family businesses should give importance to and study seriously.

Family clan Patek Philippe

This family business was started in 1839 by two businessmen, Antoni Norbert Patek and Franciszek Czapek, who produced pocket watches under the name Patek, Czapek & Cie. However, after only six years, a quarrel broke out between the partners. Patek had a new partner, Jean Adrien Philippe, and the company name was changed to Patek Philippe & Cie. When the two founders died, Jean Adrien Philippe's son and son-in-law inherited the business until 2, when the Great Depression hit, causing expensive watches to become unsold.

In 1932, the business owner initially sold the Patek Philippe watch business to the two brothers, Charles and Jean Stern, who had been in the watchmaking business for Patek Philippe for a long time. This was the beginning of the Patek Philippe business under the Stern family, which has been managed by the 2th generation until today. If we start counting the watchmaking business, we must start counting the business since 4, which will be 1839 years old this year. But if we count because the Stern family entered the business, it will be 186 years old this year. When the Stern family entered the business, they started producing the most complicated watch mechanism in the world. The first watch model is called The Graves Super Complication, which was ordered by an American millionaire named Henry Graves.

The Patek Philippe watch business grew without being listed on the stock exchange. (Henri Stern) Charles's son, the second generation heir, took over the management of the watchmaking business to grow at the age of only 2 by establishing a private company called Henry Stone Watch Agency to be the distributor of Patek Philippe watches by American passengers. In 23, Henri became the president of the company and handed over the business to his son, Philippe Stern, the third generation heir. Henri Stern died in 1944.

Philips took over the business and survived the crisis when the quartz watch business, which used batteries, was taken over by Japan's Seiko. However, Patek Philippe did not reduce prices and quality, and chose to focus on products that were willing to pay for expensive watches, and launched the Nautilus watch in 1976, but it was not very successful. Patek Philippe is the leader in the luxury watch market today, and in 2009, handed over the business to the fourth generation, Thierry Ster, who had been in the business with his grandfather and father since graduating from university.

Philips, as a third-generation heir, said that the business is part of the family. If we sell the business, we will feel alone. Therefore, the family has never intended to sell the Patek Philippe business to anyone. Currently, the fifth-generation heirs, who are Philips' grandchildren, have joined the business since they were 3-5 years old.

Patek Philippe's advertisement, "You never actually own a Patek Philippe. You merely look after it for the next generation," means that Patek Philippe customers do not own the watch, but merely maintain it to pass on to their children. This is in line with family business succession, and is a slogan that family business owners should consider.

This Patek Philippe family business always says that his family does not own the business, but rather he is the custodian of the business to pass it on, even though he is a shareholder and the legal owner of the business. This family business maintains the quality of the products, increases the value of the brand, creates new innovations and creates a bond between family members.

This family business emphasizes on foresight, allowing the business to move beyond the product cycle, with the sustainability of the business as the main priority, by developing innovations to keep up with changes in production technology and consumer tastes, and maintaining the quality of the products and the reputation of the business, even when changing to new products. Therefore, family members must be nurtured to be aware of passing on the family business from generation to generation, with foresight for the sustainability of the family.

Lessons learned from the watch business Patek Philippe

1. The Stern family's policy of quality production, change and vision since the acquisition of Patek Philippe watches from its business partners and the production of quality products and new innovations from the business all the time has made this watch accepted worldwide as well as Patek Philippe watches, even when faced with new products with low cost.

2. Letting family heirs get familiar with the family business from a young age and giving them experience in foreign countries with high sales, such as the United States, is something that cultivates the business to progress far and wide. In the case of the Chirathivat family, there is a similar training model.

3. This family business does not need to be listed on the stock exchange because they want to keep these businesses for the family only. Therefore, it is interesting whether family businesses really need to be listed on the stock exchange in every case. However, no one knows whether not listing on the stock exchange in the future will cause problems for heirs when there are more heirs. When compared to the case of Hermès and LVMH, it is a matter for each family to consider for themselves whether they should be listed on the stock exchange or not.

I believe that if a family business wishes to list on the stock exchange, the concern of being taken over when listed on the stock exchange can be resolved by setting up the right legal structure, such as setting up a holding company or grouping shares with different voting rights.

Next issue will feature the Fiat and Toyota family businesses.