A Family Member Is Only A Trustee

A legacy of 350 years spanning 13 generations — that’s what makes German healthcare and life sciences multinational Merck a much quoted example of family leadership continuity coupled with long-term sustainability of business. Business Today’s E. Kumar Sharma spoke with Frank Stangenberg-Haverkamp, Chairman of the Executive Board and the Family Board of E Merck KG, headquartered in Darmstadt in Germany. Stangenberg-Haverkamp, 70, who was in India recently, is the 11th generation leader of the holding company and head of the family. He talks about the various issues that family-led businesses need to grapple with and how a family contract can help in smooth management of family businesses. Edited excerpts:

What should companies, young in their generational progression life cycle, focus on so that they can see many more generations?

The most import thing to do is to draw up a family contract early, very early — in the second generation itself, when there are three or four people involved. If you leave it to the third or fourth or fifth generation, there will be more and more people involved and it will become nearly impossible. The family contract or a constitution or any legally binding written document should lay down all the rules and regulations for eventualities like if somebody wants to leave the family business, then who can run the business; how to split the dividends; and a lot of other things that a good family lawyer would know and can help come up with a good draft, one that will make it difficult for a family member to opt out of that contract. You need to put it all down in writing and clearly define a family member and ensure that all participate. Never make the mistake of offering an option to sign the contract. Any family member who comes of age or inherits shares should automatically become part of it.

What happens in cases where a daughter- or son-in-law is good at running a business?

You have to differentiate between ownership and management. So, if the son/daughter-in-law is brilliant, he or she can run the business and one can give part of the ownership to him or her. Every person – son-in-law, daughter-in-law, an adopted member – is a family member but may not be allowed to vote for the family board or for change of contract. But I, as the owner, can pass on some of my ownership to my wife, son-in-law or daughter-in-law and they will have the same rights as the owner. The difference is, if they decide to separate, then the spouse (not having the bloodline) will have to surrender his or her ownership.