Fundamentals of Family Business

Case Study: Beretti Holdings - More than a retirement decision

Topic: Corporate governance

Beretti Holdings AG is a publicly listed company controlled by the Berreti family. The firm was originally founded by Peter Beretti in 1920. Over the years, the firm has grown significantly and has become a diversified holding company with an annual turnover of approximately $900 million. The firm's activities include the production of roof tiles, coating liquids and industrial cooling equipment and the lease of production equipment. The family currently controls 60% of the firms equity, with the rest of the shares held by various public investors.

Beretti Holdings owes much of its success over the past 20 years to the managerial talent of Marcus Mandell, the firm's long-term CEO, and to the business acumen of the president of the supervisory board, Robert Beretti. While Marcus Mandell is a nonfamily employee, Robert Beretti is a third-generation family member. Both men are in their early 60's. Another Beretti family member, Thomas Brennan (45 years old), oversees the industrial cooling division, with an annual sales volume of about $150 million. The supervisory board consists of Robert Beretti (president), Thomas Brennan and three non-family members. The current governance structure of Beretti Holdings AG is as follows (Figure 5.19).

The family shareholders are bound by a shareholders agreement that foresees preemption rights and, in particular, valuation principles for share transfers. The preemption rights stipulate that shares should be kept among family shareholders. In case of a share transfer, the members of the owners nuclear family should have the right of first refusal, after which the shares are offered to the other families within the same branch of the family tree and finally to the other family branches. The structure of the Beretti family is as follows (Figure 5.20).

In a meeting of the supervisory board last year, Robert Beretti announced that he would be retiring next year. Marcus Mandell, the current CEO, also announced his retirement for the end of next year. Subsequently, disagreements arose in the Beretti family about how these positions should be filled. Until this point, the family shareholders traditionally followed the lead of Robert Beretti.

In recent years, the complexity of the firm's shareholding structure changed dramatically. Where before there were three second-generation family shareholders with equal 33% ownership stakes, there are now 18 third, fourth and fifth generation family shareholders. In total, the family consists of roughly 40 members, including non-shareholding spouses and children. This complexity has not facilitated the decision-making process at all; in fact, the family shareholders seem to be paralyzed and unable to take a decision.

Regarding the selection of the president of the supervisory board, there were two camps among the family shareholders: the first camp, mainly represented by the family branches of Mia and Nathalie Beretti, favored a solution in which each family branch would send a family representative to the supervisory board; the second camp, consisting mainly of Peter Beretti's family branch, suggested forming a single pool of family shareholders that would select a number of representatives for the supervisory board independent of their affiliation with a family branch.

Discussions about CEO succession were equally contentious. One group of family members was pushing for Thomas Brennan to become the CEO. They argued: "Thomas knows the firm very well. He already serves on the supervisory board, so why not make him CEO as well. He is one of the family." And behind closed doors, they added: "Thomas will do his best as CEO, because if he does not perform, he knows that he will most likely lose his family as well as his job." Other family representatives proposed a different plan: "We should hire a professional CEO who is able run the company without any family biases or burden. Thomas is doing a fine job as head of the industrial cooling division, but we do not see him as being the CEO."

Communication among the family shareholders was far from optimal. On the one hand, long, unstructured emails were sent to 23 family shareholders asking for their opinions. On the other hand, some family shareholders met at a private event and came up with a solution which they saw as final and binding for all shareholders. Frustrated by these developments, other family members suggested establishing governance bodies so that the discussion and ultimately the decision-making processes could be structured in a meaningful way. The question was, what type of governance bodies?

The family's challenges were brought to the fore when the Berettis final decided that one family representative should replace Robert Beretti on the supervisory board. There were two candidates from the family. The first was Robert Beretti's wife Julia, a 50-year old human resources consultant. Robert and Julia Beretti have no children. The second candidate was Tibor Mueller, a private equity consultant from the fourth family generation. The family hired an executive search firm to determine which of the candidates was best suited for the supervisory board job, and the search firm suggested that Julia was the most competent. Unfortunately, however, the Mia and Nathalie Beretti family branches were unwilling to support Julia. They argued: "it's time for the other two family branches to have some involvement too." Finally, Tibor Mueller was elected to the supervisory board.

Which type of governance bodies are needed the family in the case?

(Family meeting, family assembly, family council, family committees, family agreements, famiy office)