Roche, Richemont, and Co.—The Success Factor of Family Businesses in Switzerland

Daniela Diethelm: Jean-Philippe, let’s begin with the big question: Why are family-owned companies so successful? What do these companies have that others don’t?

Jean-Philippe Bertschy: This is a question that has also preoccupied us, Daniela, and ultimately led to a study. We examined 29 companies in which the family—typically the founders—own at least 20 percent of the share capital or 20 percent of the voting rights. We found that family-owned companies generally take a more conservative approach to debt. Moreover, nearly half of the companies analyzed have net cash. In stark contrast, fewer than one-fifth of non-family-owned companies have net cash on their balance sheets.

Family-owned companies also have a more stable dividend distribution pattern. On average, the proportion of dividends paid out of net profit is around 0.6x.  

That sounds promising. Do these factors also apply to mid-caps, or are they unique to large corporations? And is this success sustainable?

Most family-owned companies in Switzerland are mid-caps. Their sustained performance over time is also the driver for the whole group since mid-sized companies in general have been in a sweet spot during the last 20 years.

A comparison of each group with the respective benchmark is even more telling. While large-cap family-owned companies outperformed the SMI Index by more than 1.6 percent annually, mid-cap family-owned companies achieved an average outperformance of 3.3 percent against the SMIM index.

Over the last 20 years, family-owned companies have consistently outperformed non-family-owned companies. I believe this is related to the long-term incentives for the management of family-owned companies, allowing management to focus on improving the business for future generations rather than being driven by short-term performance incentives. This insight is valuable for investors, highlighting the importance of a long-term view when investing in family-owned companies.  

Let’s move to my next question. In which sectors do family-owned companies have the greatest influence? Are there significant differences?

Indeed, certain sectors have a much higher concentration of family-owned companies. In Switzerland, this includes the industrial and consumer goods sectors. In the industrial sector, for instance, 12 family-owned companies make up 41 percent of the total.

Ranking second are family-owned consumer goods companies with a tilt toward the consumer discretionary sector. This didn’t surprise me, because many large consumer goods companies worldwide are also family-owned, particularly in the luxury goods and automotive sectors. LVMH, Kering, Hermès, Ford, and BMW are family-owned, for instance. In Switzerland, the Geneva-based Richemont Group, with brands like Cartier, IWC, and Montblanc, is an example.¹

When it comes to large corporations like Richemont or Roche, I can’t help but wonder how closely the founding families—some of whom established their companies’ generations ago—remain connected to the business. What role does a descendant of the founding family play in running the company? Is there a battle over succession within the family, as we sometimes see on TV?

In Switzerland, things are a bit more orderly than on HBO I think, although it’s an entertaining thought, of course. Generally, family members hold either supervisory or executive roles within the company. Several family members may even hold positions simultaneously, with their level of involvement depending on the family and individual members.

In our study, we found that nearly half of the family-owned companies we analyzed have a family member as chair, while less than a third of CEO positions are filled by family members. Additionally, in five out of six companies where the CEO is a family member, the chairperson is also a family member. This is the case, for example, at EMS-Chemie and the Swatch Group.

And does this work without any friction?

Unfortunately, there are indeed downsides. For instance, we found that governance-related metrics in family-owned companies are generally weaker compared to non-family-owned companies. Take the “one share, one vote” rule, for example. This principle typically ensures a proportionality of risk and power among shareholders. However, when family members are involved and conflicts of interest arise, tensions can occur between family and non-family managers. Family owners often exert considerable influence over strategic direction and the evaluation of its execution, which limits the influence of non-family shareholders on the company.  

Is anything being done to address this?

With the growing awareness of companies' ESG characteristics, we have observed that not only institutional investors but also an increasing number of private investors are recognizing the importance of corporate governance—alongside environmental and social practices. We therefore expect that investors will scrutinize corporate governance, particularly within  family-owned businesses, more closely in the future. This could lead to improvements within these companies.  

However, there are also many examples demonstrating that family ownership can provide stability and, when managed well, create significant value for non-family shareholders as well. For instance, family-owned companies like Richemont and Lindt & Sprüngli achieved the highest total shareholder returns over a five-year period. In the healthcare sector, Ypsomed, another family-owned company, also outperformed its peers.

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