Mainz to Munich

Today was a day of travel between Mainz and Munich and we are riding the train at the moment, so I thought I’d tell you about one of our “cultural fieldtrips”. I don’t think it’s a stretch to imagine this but traveling to Europe with a group of students may include an occasional sampling of local food and beverage.

After wrapping up a great stay at the European Business School and finishing up our presentations on Grohe we spent our last night heading to one of the regions oldest breweries in Mainz. We took the train back to Wiesbaden that night and in the morning we headed to Munich for the next part of our European Business Tour.

In Mainz, we discovered that the brewery is in fact a family business, one that has lasted a few generations. This is pretty typical throughout the wine and beer region and it has its roots in the church. For example, the monks of Kloster Eberbach started producing wine and beer because the water couldn’t be trusted at that time. Even in Roman times, when soldiers were posted in the region in early 400 AD, centurions were paid with three litres of wine each day. It makes you wonder how they could stand up let alone soldier but I’ve been told the alcohol content was fairly low. But we were there not to discuss Romans, but to sample a traditional German feast and to enjoy two traditional beer experiences: the “Yard” and the “Tower”.

I can tell you that the food was delicious and it is truly a wonder that the Germans are not the largest people on the planet. The “Pigs Knuckles” sound revolting but in fact this is a translational issue more than anything. The “knuckle” is more like a leg shank and in order to finish this gastronomic platter you have to have skipped a few meals first and bypass the salad bar. I had traditional schnitzel whereas others sampled the goulash and bratwurst.

We took a tour of the brewery, learned about the process of fermentation and then got back to sample the Yard. This is actually 8 little glasses of beer where your table could sample the different types of flavours. The other thing that I hadn’t seen before is the Tower – a giant tube of beer with a spigot on the bottom where a table can share a glass. I liked them both very much. Others liked them even more.

I’m hesitant to speak further about the evening except to say this was a wonderful team building exercise. We learned a little German – Du ist wundeshien – you are beautiful – and the younger guys in our group were encouraged to practice on the local students to see if it helped in “building cultural bridges”. I can say unequivocally that it didn’t work that well, but it might have been the accent they used. Still, they will undoubtedly keep trying with these new experiences under their belt. ~ MH

When Family Business Gets Personal

The past three days I haven’t been able to get much down on the blog but I have a good reason – we’ve been in class. Yes, in fact, traveling to Europe includes two visits to two different universities, 40 some hours of lectures and case-based discussions and presentations. Sure, you get to see the Rhine River while you are studying, and the lilac scent wafts in the air, but it is studying nonetheless. We’ve been at the European Business School (“EBS”) just outside Wiesbaden where we were surrounded by southern facing vineyards and buildings dating back to the 18th century.

We worked on two cases including one on the Wella Family and had to prepare a presentation on the Grohe Family. Grohe is a very successful German based bathroom fixture manufacturer that was forced into a sale by an American Private Equity firm. Once the Americans took control, the company faced several issues related to local labour issues as jobs were transferred to Thailand. What was interesting about this case was that it was quite influential over national German politics and the debate over foreign investment of large, faceless private equity firms ultimately became a campaign issue. But it wasn’t all work, as we managed to squeeze in a tour of the European Business School’s wine cellar in the evening. I have to say the U of A could benefit from some sort of cellar/seller of wine arrangement. (The Assistant Dean, Development should look into this more!)

In attending the lectures, you see how complex and important family businesses are to the overall economy. You can also apply what you learn to your own situation even if you don’t have a family business. Who among us won’t face a potential sibling, cousin rivalry over the family farm, or a house, or the family candlesticks? Multiply that on a scale of millions and the gap between “complex family enterprises” and your potential family issues narrow rapidly because families really do face the same issues. But hammer home the point, Dr. Sabine Klein, Chair for Strategy and Family Business at EBS gave her lecture. And this is when family business really got personal for me.

Sabine generously offered up her own story, both good and bad parts including how her family dynamics worked. Her family business could be considered an iconic German success: the family empire specialized in the production of margarines, oils and fats, and frozen foods throughout Europe. Her grandfather started the business in the early 1900’s and by the time it came for her and her brothers to determine succession, it was the second largest producer of its kind in Europe.

I’ve met lots of CEOs and it is always impressive to them talk about the latest company profits. However, it is an entirely different and intensely vivid experience to hear from a member of the controlling family. Sabine showed us the skeletons in the closet, describing how politics between generations, brothers, mothers and fathers can influence and impact succession of an international firm. As Sabine said, family business is more intense because you can’t quit your family and you can’t divorce your mom or brothers.

The expectations on what happens when a succession issue can be emotionally raw, intensely sensitive and bring back elements of past interactions that at the time were harmless and even loving. Once succession is triggered however the jealousies, the rivalries, and the unique personalities rule much of what happens next. Sabine’s most vivid point for me was that the health and happiness of a family is dependent on every member being happy, and that when one member is hurting all members hurt. The impact of ignoring this can tear families and businesses apart and once successful legacies can evaporate in short order.

I can’t really describe this lecture fairly. I can say I felt very privileged that Sabine was willing to share her tale, and to use it as a backdrop to apply what we’ve been learning over the past few days. I also look forward to hearing her lecture again and she will be at the U of A in the fall so I won’t have to wait too long. In the meantime, I may send my brother and sister an email – just to let them know I was thinking of them. Seems like a good thing to do in the context of the past few days. ~ MH

News on the blog

I suppose everyone has 15 minutes of fame. Mine has come in the form of this blog. The National Post was kid enough to promote the blog on their site http://www.financialpost.com/executive/story.html?id=1569121

As well, I have created a facebook page for those who are interested in seeing some photos from the trip. I will be honest - everyone says they will download their photos but we're all distracted with the classes the past three days and so there isn't much up yet. The group is called the U of A Family Business Tour to Europe. Check it out! ~ MH

The European Central Bank - ECB

Last September I sat in the back of the class in Economics 501, the first time in many years since I'd even thought of a demand curve. At the time I figured I was in trouble - my last experience with an indifference curve had been, well, indifferent at best. During the semester Prof. Dick Beason raced through such advanced topics as fiscal and monetary policy, the impact that interest rates have on consumer demand, the M3 money supply (a way to define cash out there in the system) and where the Bank of Canada plays a role in all this. I wasn't lost by the end, but I figured that my reintroduction to economics was more of a dip in the pond rather than swimming a the full leg of the triathalon.

So imagine my happy surprise when we get to the 36th floor of the European Central Bank and Nils Bünneman from the ECB starts launching into a presentation on monetary policies of the EU. I found myself not simply bobbing with waterwings - I was actually prepared to jump into the deeper water without goggles!

This is the highlight of the trip for me so far. The ECB is in Frankfurt, the heart of industry in Germany some would argue, and Peter had arranged for our little group to be treated like true diplomats. After passing a rigorous screening process and a security guard patdown, we headed to the top level to the actual room where the ECB determines the best course of action to ensure there is price stability. The decisions of the 16 members of the ECB General Counsel impact all 27 EU member states and represent approximately 475 million people.

I have to say being in the room felt a little like being at the United Nations (or so I would guess). The table was expansive and round, and here we were talking about the actions of one of the world's largest banks. At one point Magnus Arnasson from Sweden took over, a PhD in Economics who worked at the ECB and he described how the rate free interest rate and the premium rate impact the volitility of the Beta, how Fisher's model for determining Dividends paid comes into play (Div next year/discount rate - growth rate for all you finance nerds) and even mentioned how net present value calculations are determined by cash flows that are discounted back in time. We just took that in Finance 501 - how cool is it that my education would be so relevant so soon after exams?

Similar to the FED or the Bank of Canada, the main purpose of the ECB is to implement monetary funds, hold foreign reserves, and manage smooth payments between banks. But instead of the banks being intercountry only, they deal with various nations and their own very different needs. All this activity ultimately leads to price stability - a big thing for Europeans who have seen hyperinflation within the last hundred years.

So why is all this important to family businesses? Smarter people than me can argue why, but I think it's because most European businesses are family businesses and this drives the economy's engine. These companies rely more heavily on banking to secure capital than in North America where most capital is obtained directly in the free market through stocks. As a result, the banking system needs more intense coordination and the benefit is that this diversified blend of economies helps stabilization.

Anyway...the trip was a good one and you can tell I was jazzed by what they were talking about. We took some great photos of the ECB and the Bull and Bear outside the stock exchange too. I'll try to get them up as soon as possible. Tomorrow we head off to the European Business School for the beginning of our lectures. Yes! We do actually go to class on the trip. ~ MH

A Real Family Jewel - Merck KGaA

When I signed up to go on this trip there were a few in my family that may have had some doubts as to the validity of this exercise. "Studying family businesses in Germany? Sound more like something you say to justify buying a month -long Eurorail pass." But after toda's visit to Merck headquarters in Darmstadt I can assure all parents, spouses and mother-in-laws that we are getting some amazing exposure to corporate governance education.

Today we spend 5 hours at Merck, starting with a lengthy discussion with a high ranking member of their Family Board, Mr. David von Klackreuth. He generously flew down from northern Germany to spend the day with us and share Merck's story of success over the past 12 generations of chemistry and pharmaceutical dominance in Europe and internationally. There are over 219 members of the Merck family that are actively holding shares. These family members own 70% of the company's value. Not bad for a company that had sales of $7.6 billion in 2008. In fact they are so big, that even with only 30% trading out in the market they are still part of the DAX (Deutche Exchange) Top 50 index.

Merck headquarters cover over 1.2 square kilometers and just at this site alone there are over 8000 employees (over 32,000 worldwide) and 450 buildings, some dating back to the 18th century. The scope of the company is vast adn it seemed like every time we went somewhere they told us of another innovation they had discovered or implemented to become more effective or efficient.

The tour of their warehousing facilities for potentially dangerous chemicals was a highlight for me. You'd think we'd be in danger but the warehouse is almost completely automated. They have six stories of warehousing where each combustible chemical is separated from the other potentially bad chemicals and these automated forklifts come and select just the pallet they need. It's right out of science fiction novels. By being automated they mitigate most of the risk for employees too.

Merck's products have an impact on our daily lives that I had no awareness of too - whether it's cancer treating beta blockers, or liquid crystal manufacturing for our cellphones or even cosmetics or vitamin C, the company seems like they do most everything.

In the end though it was the family, the values that they embody, and their vigilance to those values remaining the backbone of corporate culture over 12 genreations that impressed me the most. Their approach precipitates life long loyalty with employees and pride in work that seems missing from north american companies looking for increasing their quarterly returns.

We weren't allowed to take pictures anywhere, but we did get one photo with Mr. von Klackreuth and the "A" + group. I suppose sometimes family secrets are best kept when they are held as treasures and shown only in rare moments. We felt like we got a glimpse of that today.

On the Rhine - Steep Incline - Monks with Wine

(Note: I will be adding more photos as time goes on but the battery on my camera died in my first day here).

The first full day in Germany was beautiful. The sun was shining like a bright July day in Edmonton (but this is May) and to ease into our jet lag Professor Peter Jaskiewicz (Peter from now on) had organized a boat excursion down the Rhine river originating in Rudeshiem. The "A" was now being fully adopted by the group and we took it to its first fully Germanic tourist trap - the Drosselgasse. This narrow street reminds me of Harry Potter's Diagon Alley with shops lining its narrow passage as you are targeted for sales of postcards, coo coo clocks, and german chocolate. I narrowly escaped with only a few Christmas ornaments in tow.

We shuffled between ice cream parlors and "gasthauses" (restaurants) back to the docks where we boarded a ferry that would take us from Rudeshiem to St. Goars. It was a relaxing, fun time and along the two hour tour we saw examples of 12th and 14th century castles along the way every 15 minutes or so.

Roshanne and Barb in Rudeshiem

We docked at St. Goars along the famous cliffs of Loreley where legend tells of a young maiden with a golden voice. She would sound so beautiful and look so lovely that ship captains would run their barges against the shoals just to get a closer look. It was here that Peter suggested a short climb up the cliff where we would have a wonderful view of the Rhine and we could grab a bratwurst and some coffee or beer. It sounded lovely.

Of course the hike was a shock to many of our systems. We had been lulled into a state of sedentary complacency and now the 20 year old BComs were jogging up the hill and the old MBAs were forced to keep up. Someone offered me water upon reaching the top, another offered me a difibulator as a joke. I took the water...barely.

After gathering our breaths, our strength, and some lunch, we headed off to Kloster Eberbach, one of the best preserved and oldest monasteries in Europe. In fact it is so pristine it was used as the backdrop of the movie "The Name of the Rose" with Sean Connery. Seeing it up close and learning its history was interesting and it set a good base for what I'm sure will be a theme during the trip - Germany is steeped in history. We toured its different rooms and visited the wine cellars (which had no wine but many casks) and enjoyed learning how religion played the major role in settling the Rhine Valley - a UNESCO Heritage site.

So after the Rhine, the Incline and Wine we trundled back to Wiesbaden to rest up for a full day of Family Business studies at Merck tomorrow.

Transitioning into Deutschland

As we arrived in Frankfurt on Saturday afternoon, most of us were still feeling a bit of a shock to our systems from the time difference. Sleeping on planes has never been something I do well, and I knew that the first day was going to be one where I was up for 30 hours or more. As it turned out, so were most of my classmates.

One thing you need to know about this trip is the “famed A” that we brought. The “A” is 2 feet by 2 feet by 5 inches, made of foam, and created at our friends in Industrial Design at the U of A. I brought it to show people that wherever your degree takes you, whatever your experience, the U of A is with you too. It’s cheeky, it’s symbolic, and it has caught fire and the attention of tour guides so far. Look for the A to be our own version of Travelocity’s gnome.

Bleary eyed and yet excited at arriving without any hassle or hiccup through customs or baggage, we stepped out to humid, sunny Germany. The consensus is that a) this place is very clean and b) it is much greener and prettier than we’d all imagined. Driving to Wiesbaden we saw forests and fields of canola in full bloom, vineyards and hills dotted with 18th century towns, castles (I’ve lost count there are so many) and gothic churches rising out of a lush vibrancy of green everywhere. If this was the carpet being rolled out to greet us then I couldn’t imagine what would be next.

The first day we had time to explore, and as it would have it, Doug Matheson and I found the street that turned out to be the most popular one for hanging out. We walked for a few hours before reposing at an outdoor café for some schnitzel and beer (hey we ARE in Germany after all) we collected back to join the others for dinner. Lloyd Steier and Chantel Blanchette joined us for an hour of people watching on a beautiful Saturday afternoon.
After a tasty meal at a Cuban restaurant, the group walked back through Wiesbaden’s beautiful park. There were trees as old as time shooting up past seven stories and a large pond with a fountain that reminded me of Hawreluk Park (though not as expansive). Rhododendron bushes and lilac trees filled the air with wooded perfumes and the walk back to the hotel was a wonderful way to end the day. We walked through the Casino which is housed in a building going back centuries out to an old car exhibition that happened to be wrapping up for the evening. We posed against cars that James Bond might drive in olden days, VW wagons, Porsches and other exotic vehicles that made the first day seem pretty fantastic.

As we meandered back to our hotel, with the full European summer's eve and the jet lag still in its early stages, I think we had a pretty good first day. - MH

3 sleeps and counting...

The Europe Business Family Tour starts Friday and I'm really getting excited. It's part of a joint BCom MBA course put on by the Alberta School of Business at the University of Alberta. Of course it all seems glamorous...off to Europe? Why yes...but the intensity of my real work and the load I'm trying to plow through seems to get worse as the date of departure creeps forward. I take solace in the fact that by Saturday morning I will leave that all behind and be sipping a strong "kaffe"(I'm not German so I may have this wrong) and a ...what do Germans eat for breakfast?

The EBFT tour is based upon learning more about intenational Corporate Governance, a hot topic these days especially in light of the decline of the stockmarkets, the outrageous paychecks of corporate executives and the overall impact a lack of regulation has had on all of us. Who hasn't had their meagre stock portfolio drop to the point where we discuss our wealth in terms of the extra years we now have to work. Freedom 75 baby! Looking good.

But in Germany the system is different. The businesses are less reliant on the stock market because of the control families have retained in operating their businesses. Governments, banking systems, and shareholder rights are unique. This trickles down into what motivates management, employees and creates culture in the company.

So with a few sleeps left I'm starting this blog to record our journey. Plus I needed to post something ahead of time...I'm not saying I won't find coffee on Saturday morning, I just want to put my full effort into that.