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Financial Director: Raising hope for Haiti

2 Oct

British medical charity Merlin won a charity prize last night and their tweeting about it reminded me that I had interviewed its director of finance, Vicky Ennis, in the aftermath of the Haiti disaster in 2010, about how charity finance people lead efforts to respond to major emergencies of that scale. Very much enjoyed researching and writing this article, and speaking with the finance directors from several charities who responded to the Haiti disaster – have a read.

One of Merlin's mobile clinics in Haiti. Photo from Flickr.com/merlinphotostream

One of Merlin’s mobile clinics in Haiti. Photo from Flickr.com/merlinphotostream

The utter devastation suffered by Haitian citizens after the 7.0 magnitude earthquake that struck on 12 January rendered the biggest humanitarian response ever recorded, reports claim. No ballpark figures yet exist, but several billions in individual donations combined with government gifts and a raft of large celebrity cheque signings amassed unprecedented sums, all within days of the event.

Getting it into the country in those first few days, though, proved impossible. Most of Haiti’s infrastructure and banking system are out of action; roads are decimated by mudslides or mountains of rubble from the estimated 280,000 collapsed or badly damaged homes and commercial buildings. And what use is a single dollar bill in a place where the markets, their suppliers and the ports allowing essential imported goods in are destroyed ­ while their proprietors may be among the estimated one million homeless, or the 530,000 dead or injured?

In fact, due to the level of disturbance, the response from UK charities to these challenges was quite literally to bundle up thousands of pounds and wire it to Haiti through neighbouring Dominican Republic. Vicky Annis, head of finance at medical charity Merlin, explains that her team of 12 finance staff had to do just that from its central London headquarters. “It has been quite literally a case of three or four members of my finance team taking £3,000 in cash down to our local Western Union several times a day,” she reveals. “It’s enormously time consuming.” Merlin was one of the first charities that had no previous business in Haiti to land there after the disaster.

David Membrey, acting chief executive at the Charity Finance Directors’ Group, confirms this has been practice elsewhere. “I know in the case of the 2004 tsunami that some charities, in the weeks after the event, were literally sending staff out with rucksacks full of dollars,” he says. “The destruction was so wide there that you could be on a project where there might not be a working bank for a 100 miles. It’s not a long-term solution but it’s a practical one.”

Faith-based charity Cafod’s head of finance James Steel has to employ his skills of persuasion and pull in help from around the business to cover sudden need from finance. Cafod has a financial accounts team, a financial management team and a humanitarian finance team, he explains, as well as donation processing people to call on if it needs extra hands.

Charity FDs say they were not hit with the response for Haiti until between 72 hours and the first week after the event, once trustees and directors (including the FDs) had decided on their level of response. Says Steel: “In early February, while Haiti was going on, we had external auditors going through what we’d done in Southern Sudan and Mozambique with a toothcomb. You’ve got to balance that over the life of a response to something like Haiti,” he says. “It brings a level of complexity into the organisation.”

In and out
While the process of getting money in the door is now automated thanks to online and text donations, FDs in even large charities found themselves struggling to upscale dramatically in the first days after Haiti to get it out again. It meant diverting finance staff from modest teams away from their usual duties, diverting funds to hire temporary staff or persuading other managers to get their non-finance volunteers mucking in.

“This office was full of volunteers processing credit cards on the weekend, because suddenly we had this massive surge and we had no time to plan around it,” says Joe Ghandhi, head of finance for Médicins Sans Frontières UK. “I was ringing our 0800 number first thing every morning to test the response time and some of our country websites had real bandwidth issues, so we had to switch things around.” MSF already had around 800 staff in the field on a long-term programme.

Cafod’s Steel concurs. “In the 2004 tsunami appeal we couldn’t change the message on our freephone donation number. It was Boxing Day and I was in the office trying to change it, but we couldn’t get hold of anyone,” he says.

Charity FDs are learning valuable lessons around how to plan for these problems that really hamper the increasingly common emergency responses they have to make.

In other, ongoing ‘silent’ crises such as the conflict and mass displacement of people in Jos, central Nigeria, or responding to the immediate needs and longer-term rebuilding efforts in Sumatra after last September’s earthquake, getting funds to disaster-struck communities on a regular basis proves difficult, too ­ and is part of the FD’s remit.

Cafod’s Steel reveals how far down in the detail FDs mobilising resources can be. “We’re making quite a big response in Jos and for that we had very immediate spending needs. We decided on the Friday that we needed money to respond and it got there on the Monday” ­ good going, given that getting money into rural Nigeria is difficult and we work with a lot of individual clinics there, says Steel. For Haiti, Cafod sent four people immediately, “but we were short on dollars, borrowing them right, left and centre, making sure they’d got credit cards: small things, but just making sure that they had what they needed.”

Informed response
MSF’s Ghandhi highlights the communication skills needed from FDs in crisis response. His finance function worked closely with its fundraising and press departments on the Haiti appeal to stay informed about what campaigns were running, as it has a direct impact on his mandate. “Because of that, finance knew early that we had a fantastic response from the public so we then had to shift quickly to asking donors to donate for our general programmes rather than specifically for Haiti,” he says. This fulfils its other longer-term projects and uses money wisely.

Keeping track of what is spent where, as well as building an overall plan to rebuild communities is something the charity FD needs to balance. Cafod’s Steel says that 72 hours after the Haiti earthquake his finance team were finalising areas of responsibility for spending mechanisms and for setting a framework for accountability.

“You need to establish mechanisms for receiving money, setting up o utsourcers which can be complex, then working out how all of it is going to get back into your database and how it is going to be accounted for,” he says. “You’re sending people to Darfur and you have to meet their pension and payroll needs.” Merlin’s Annis designated an additional finance person to manage everything to do with Haiti from the UK and assigned a specific code to all costs arising from the response, to make accounting for it simpler.

“Now it’s about bringing in all our financial procedures and controls so we can understand where we are for developing a full budget, having that reporting on cashflow and having an idea on a weekly basis what cash is going to be required in the field, and managing how we transfer the money on a much more regular basis.”

She adds: “We need to identify our Haiti spend against different donor projects and split them down into project level, start reporting against it and understanding where we are on our budgets.” Merlin will place a permanent country FD in Haiti for the next six months to oversee this reporting process.

MSF’s Ghandhi will need to finance the rebuilding of its three field hospitals, all of which were badly damaged in the earthquake. “I have to talk with our central team about how much we can spend over the next three years, say, to fix them ­ so our campaigns have to match that amount.”

Against the backdrop of what corporate FDs have had to manage recently, the work charity FDs have done to respond to Haiti and other disasters is impressive. “It can be difficult to scale up in a very dramatic way ­ something that no one in a sane world would do ­ but you just have to do it,” says Cafod’s Steel. “There is the supply chain management, procurement is very difficult and there is all the political stuff.

We had a briefing in early February from someone who just came back from Haiti and his message to us was, ‘why send tents when the rainy season is coming, can’t we get into semi-permanent construction’. The logistics of getting materials into the country with no infrastructure make that absolutely impossible.” At some point, though, they’ll just have to.

The charity FD and disaster response
In regular contact with charities across the UK, the Charity Finance Directors’ Group has the big picture view on how the sector responded to Haiti and some chronic issues charity FDs face in disaster response. Acting CEO David Membrey spoke with Financial Director about his observations and where he saw the troublespots for FDs.

• Logistics
“A good charity FD really understands the operational networks and logistics of the charity better than anybody else. They should know what is where and they should understand the systems that will tell them how many blankets they’ve got at their depot in Wigan, for example. If they don’t, they should know where to get it.”

• Sector-wide collaboration
“If you don’t have a programme in Haiti you don’t have to set one up overnight: you piggyback on somebody else. That happens a lot in the charity sector as they all know each other and often get together, so can share resources. They can do more if they share resources than they can if they work in isolation and there’s no point ordering the same thing for the same area.”

• Disaster planning
I know of some charities trying to set up a network of warehouses and facilities to house goods for emergency response across the world, rather than mobilising stuff from, say, Europe to be flown to the Caribbean or Asia at a moment’s notice. The next disaster of Haiti’s kind is not likely to be in London, so why keep all your stores there? FDs of charities need to think about this and I know they have done.”

• Donors should listen to the FD’s funding decisions
“Donors to the 2004 tsunami wanted to see immediate results and it was difficult for many charities to reconcile that with the need for long-term planning. The fact that a lot of that money wasn’t spent after two or three years was viewed negatively, but charities wanted to make a lasting difference, to rebuild homes so they won’t fall down the next time. That is a very real issue for FDs: they have to say, ‘no, at the moment the bank is the best place for it’.”

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From my archive: Finance directors still need convincing on the value of social media

7 Aug Hey, it worked for Mark Zuckerberg...photo courtesy Flickr.com/Matt Debouge - http://www.flickr.com/photos/mattdebouge/6916612853/

While I’m waiting for my next two freelance articles to hit the news-stands, I found this from my archive to share. Looking back it’s amusing that I chose to write this, given that until that time (Christmas 2010), I was a Twitter hater and wrote about it on more than one occasion. But I’ve found as a freelancer that it has actually proven profitable for me – literally – to have my Twitter profile and to update it regularly. I have found work through it. But finance directors see it differently as the piece below found.

Have a read.

Donald Rumsfeld once said there are known knowns, known unknowns and unknown unknowns. But that was one year before the birth of LinkedIn, three years before Facebook went live and five years before Twitter emerged.

Now, the champions of social media networking would have you believe that by plugging in to these and other platforms, known knowns can be challenged – as the Wikileak cables have shown – while known unknowns can become knowns. And anyone who does not want to know who singer Lily Allen hates this week might say the average Tweet is an unknown unknown that would have been better kept as such.

Hey, it worked for Mark Zuckerberg...photo courtesy Flickr.com/Matt Debouge - http://www.flickr.com/photos/mattdebouge/6916612853/

Hey, it worked for Mark Zuckerberg…photo courtesy Flickr.com/Matt Debouge – http://www.flickr.com/photos/mattdebouge/6916612853/

Celebrity gossip aside, businesses in every sector and all over the world, along with governments and even regulators, have flocked to social media networking sites in the last couple of years. As marketing budgets have shrunk, it has emerged as a free or cheap platform on which to promote known knowns – products, services, opinions and expertise – and understand known unknowns: what their rivals are doing, what their clients want from them, what the next big thing is and what the market thinks of them.

But a list of Twitter accounts run by FTSE-100 companies published by Lance Concannon, a social media consultant, demonstrates how rudimentary many of those efforts still are. The list is littered with that have been updated a few times and then abandoned. But of those that are actively maintained, the value seems clear. BT’s @btcare Twitter is an extension of its customer services operation with 9,623 followers, who seem to use it when they are tired of being on hold with their call centres. Customers tweet them with complaints about billing and connectivity and appear to be answered by real people – and answered swiftly. It makes innovative service delivery into a public relations campaign.

Burberry chief executive Angela Ahrendts retweets when others mention Burberry products, throwing a bit of stardust in the direction of her followers by way of a mention while simultaneously demonstrating how vibrant and active the recently-revived brand is across the world.

Where’s the value?

For finance directors, though, using social platforms does not mean they understand the value of social media.

A survey by Financial Director, taking the views from 256 FDs and CFOs in December 2010, found that it remains largely an unknown unknown with FDs on the topic falling into two distinct camps: the avoiders of social media who are deeply cynical about it, and those who say they have had tangible return on investment (RoI) from it, but can’t necessarily quantify that return. Of the latter group, five percent report a “significant” RoI on social media and 16.4 percent say they have seen positive RoI.

Asking the question again but differently – to double check how much evidence there really is of a return – 12.5 percent said they had seen other tangible non-RoI evidence of social media having a clear business case.

But emotions run high when FDs who say they do not use any social media are asked why. About half of the FDs that took the survey use one or more social media networking platforms. Those that do not often see no reward for the time needed to update them and their immediate nature.

“Anyone who is constantly tweeting cannot actually be doing anything other than typing – so what have they to Twitter about?” asks one. Another thinks that “those who have time to use social networking sites don’t have serious jobs that absorb all available time. There is no return for the time taken updating them.”

Others see it trying to supercede face-to-face business and in the process is attracting the wrong type of interest.

“Personal relationships are everything. Any electronic correspondence is a poor substitute for shaking someone’s hand, looking them in the eye and talking to them,” says one FD. “I don’t think they add value; you get a lot of unsolicited contacts.”

Some see online networking as lacking the confidentiality that drives business deals, particularly for finance.

“Finance is about confidence and confidentiality, which is not a great mix with a broadcast system like Twitter or an intimate one like Facebook,” one FD thinks. “Real networking is something else entirely.” And in the case of Twitter and Facebook, their popularity among teenagers erodes their credibility as a business tool.

“My daughter has set up a Facebook account for our cat. It’s not exactly serious,” one CFO says. That is a fair point and one that means many businesses make blocking access to social media networking sites company policy, allowing only their communications teams to drive company accounts that are so dry in their delivery, they may as well not exist – because no one is listening.

All talk and no teeth? Photo courtesy Flickr.com/petesimon - http://www.flickr.com/photos/petesimon/3365095019/

All talk and no teeth? Photo courtesy Flickr.com/petesimon – http://www.flickr.com/photos/petesimon/3365095019/

“LinkedIn is great but Facebook and Twitter are not really much use,” one FD reports. “Very large companies can use them for public relations, but finance is confidential; ‘the company is having a fantastic quarter’ is not really appropriate for sharing.” In the eyes of many FDs, Twitter is just noise, blather or gossip.

LinkedIn rules

Contrast those comments with the statistics our survey conjures up. Of the half of respondents that use one or more social media networking platform, almost all are in possession of a LinkedIn profile and 63 percent have a Facebook page. Even more surprisingly against the comments we received about its value, 37 percent have a Twitter account. In terms of the time they spend on them, a sizeable 25 percent use these every single day while 33 percent access them twice a week.

And these are not individuals that have been forced to start tweeting by their companies. Asked what the motivation for setting up these accounts is, most FDs told us it was purely a personal decision: just five percent were compelled to do so by someone senior to them at work.

Those using these platforms in the finance world have found that it is helpful in terms of their career, building profile and connections, as well as for locating and checking the backgrounds of prospective team members. Users of Financial Director’s LinkedIn group start and drive vibrant discussions on a range of issues affecting them, seeking peer advice and experience to make ever more informed decisions.

Businesses that maintain a block on employees accessing social media may be making a mistake. Of the three most recent uses of social media we asked them to share, 17 percent of FDs said they were researching rival companies’ products and services, and 20.4 percent said they were checking out the background and contacts of prospective senior finance employees. That is of immense value to any business. The third use was responding to requests to connect with headhunters or other FDs they view as helpful contacts, either to expand their network generally or because those individuals may prove able to help them into their next role. Indeed, 20 percent had received what they saw as a genuine and credible job offer through relationships forged on social media networks, while one FD had found his current role through a LinkedIn contact.

“LinkedIn is routinely used in my organisation for recruiting. I was recruited through my LinkedIn profile – I could not provide a better endorsement of its power,” he tells us.

Among those comfortable with it, social media networks are providing another way to expand an FDs’ influence and contacts, either by linking up with people they have met in person or with a mutual connection, as a platform to meeting them in person.

Nearly 40 percent of those using social media networks use them to raise their profile as an FD and a further 26 percent use them to get advice from their peers – in the same way a traditional meeting would, but in some cases with people it may have been tough to get an audience with or with those they simply may not cross paths with otherwise.

Old boys’ club

But the problems with social media persist. Some worry that the mode of connecting it provides is a retrograde move, not progress.

“Using a social networking site for recruitment would be divisive and potentially discriminatory. It smacks of a different type of ‘old boys’ club’, ” says one finance director. Another calls networking on social media sites “the lowest form of personal braggadocio.”

And what if someone takes umbrage – or worse, calls their lawyers – over your perfectly innocent tweet? The Independent reported last November that trainee accountant Paul Chambers was convicted of sending a menacing electronic communication having tweeted, in jest, that he would blow up Doncaster’s Robin Hood airport if it did not re-open after heavy snow. He later said he had lost his job as a result.

In the US, Computerworld.com reported last July that an IT staffing company had sued a former employee for violating the terms of their non-compete agreement by connecting on LinkedIn with a number of the company’s staff. It said that she had done so on behalf of her new employer. “If Ms Hammernik could be sued for striking up a conversation at a bar with an employee from her former employer, then she can be sued for striking up a conversation with that same employee on LinkedIn,” a reader commented.

Essentially LinkedIn

As for demonstrating the value in social media, LinkedIn comes out the clear winner. Otherwise, the pictured is mixed. Nearly seven percent of FDs responding to our survey said that they view social media as essential to business, 43.5 percent said it was useful sometimes and 28.5 percent said it was not that useful. Twenty eight percent said it was useless to FDs.

One FD reports that his last three uses of social media platforms were to make contact with a former colleague who works for a company his business is targeting for sales – using the contact to get an audience with that target company – to get back in touch with a former client and invite them to lunch – as a way to get them back in his active network – and to search the contacts of his connections for any potential target clients and shortcuts to introductions with them.

That is nothing you would not hope to do offline; it is just that these platforms make it possible and fairly discreet if done well. But that requires a time investment and a willingness to go on the learning curve – and without the hard numbers to report the usefulness of social media, many more FDs than not may find that the concept remains in that unknown unknown category.

Campden FB: Is film investment all fur coat and no knickers?

29 Jun Members of Lord KItchener's First Aid Nursing Yeomanry, 1907. But have they got knickers under those fur coats? Heh. Flickr/National Library of Scotland

“It’s possibly the only instance in which prospective investors will be disappointed to see no sign of knickers.”

How did I get away with that one – in a magazine for the world’s wealthiest, often most conservative business families? This is a piece I wrote in 2004 for Families In Business magazine (now called Campden FB) about investing in film production. Very enjoyable.

Have a read.

Members of Lord KItchener's First Aid Nursing Yeomanry, 1907. But have they got knickers under those fur coats? Heh. Flickr/National Library of Scotland

Members of Lord KItchener’s First Aid Nursing Yeomanry, 1907. But have they got knickers under those fur coats? Heh. Flickr/National Library of Scotland

Returns of 500% sounds pretty juicy, but nothing’s for free. Melanie Stern scratches the surface of film investment and finds that this silver screen temptation is, well, just a boring old tax shelter – albeit a useful but ill-understood one

You might think it would take a pretty radical game of free association to link film and hedge fund investment, but it’s simple. The relation is three-fold – big due diligence and regulatory concerns make them both very high risk.

If one looks behind the proverbial fur coat of the film industry, it’s possibly the only instance in which prospective investors will be disappointed to see no sign of knickers. Film investment is simply a tax deferral scheme for the very wealthy, which is fortunate since this group is most likely to have the capacity for losing vast amounts of cash. Experts stress repeatedly that most individual investors never see their money again but the investment can be valuable as a capital gains shelter within the family portfolio – or simply, a pure passion investment with no expectation of returns.

The provision for the wealthy to invest in films has recently come under threat in the UK. Last February, the UK Treasury closed down a number of film production funds operating to the new Generally Accepted Accounting Principles (GAAP) on fears they could give rise to abuses. To keep an eye on money flowing into these schemes and to keep it closer to the country, the Government has also been working to ensure that only ‘British-qualifying’ films are accessible.

One of the more popular tax deferral schemes – due to expire next July – is Section 48 Sale & Leaseback. Focused on production budgets below £15 million for a British-qualifying film, investors put up around 20% of the gross investment, and are permitted to write off the investment to receive a 40% tax rebate on exit from the scheme, paying the money back to the Revenue over 15 years.

It is to be replaced with ‘son of Section 48’- but observers say this will benefit only the producers and not investors.

“The whole industry is trying to figure out what role there might now be for the private investor, as there are no solid products replacing the closed schemes,” says Martin Churchill, Editor of the Tax Efficient Review (TER) and an expert in UK film partnerships. “I think the market for the private investor will drop away completely post-July.”

Section 42, providing tax deferral for budgets over £15 million, remained untouched by the Treasury but is less popular with the wealthy as the tax deferral structure is shorter-term, and because it is focused on smaller, less commercial projects. Institutional investors, though not as commonly involved, can benefit from this scheme because they pay a lower rate of corporation tax.

Like the scandal-ridden hedge fund industry, film partnerships grapple with a nascent and shifting regulatory landscape that serves to keep many wealthy investors, such as families, away. In the UK, the Inland Revenue keeps a close grip on these schemes for its own gain, but the UK’s Financial Services Authority sees them as unregulated collective investment schemes. Additionally, most companies selling investment participation have not been obliged to take regulatory status from the FSA, although they can be if a large group of individuals decide to sell these schemes together. It’s a vague distinction, but it is changing. The Treasury announced in February that all intermediaries will “soon” be required to register with the Inland Revenue, which could improve investor protection and sell-side transparency.

Simon Conder, creative products director of London’s Brass Hat Films, accepts the drivers of negative perception and explains that it is down to investors to swot up before they hand over cash to the industry. “You don’t need to be regulated in this business but it is in everyone’s best interests if you are,” Simon says. “If we’re selling directly to an individual, we will do it through our FSA-regulated arm which provides financial advice outside film.”

For the meantime though, many family investors just won’t touch anything entertainment-related as a matter of course, and the number of film investment fraud cases can only perpetuate that. “We keep away from entertainment unless we have real inside information on the company and the people,” one US-based family office member tells Families In Business. “Private investors are being seduced by the promise of glamour and high returns, but as I understand it, film is very high risk and only offers a very small opportunity for a very large payout.

“Of all the private equity opportunities out there, entertainment is the one with the most fluff.”

Companies that sell private placement in film do appear to make much of the ‘soft’ perks, offering investors one’s name on the rolling credits, on-set passes, premiere tickets, director’s chairs, and lots of other high-falutin activities – but spend less time detailing the financial risks resulting from one of the financial sector’s perennial bugbears, due diligence.

There are many risk factors in film investment that merit thorough due diligence before parting with any cash, usually all relating to how commercially successful the film can be, the main driver of returns for the hierarchy of investors.

Everything from the choice of director to the cost of each production stage, to the intermediary going bust, through to the star quality of the cast and the possibility that the film will not even be released threaten the individual investor’s chances of a return. (Take the precarious examples of Swept Away directed by Guy Ritchie and starring wife Madonna, or Gigli, starring celebrity ex-couple Jennifer Lopez and Ben Affleck: sure-fire mega-hits on paper, unbelievable loss-making stinkers in reality.)

Some companies allow clients to decide which parts of the process one’s money goes to, while others put it all into a pot and decide for themselves. That aside, the distributors always take between 50–75% of the box-office profits as the first creditor in the queue, followed by the major studio investors like MGM who take similarly large slice, followed by region-specific distributors like 20th Century Fox and recoupments for ‘print and advertising’ costs. Simple arithmetic can illustrate how low individual investors rank. For example, of the total US$22.5m capital currently being invested to make one commercial film starring a top Hollywood star, one leading film partnership company sunk $2.1m for its investors; to its own conservative projections it expects to end up with $571,500 (UK£311,105) to distribute to its clients, who each put in a minimum of £50,000.

“The majority of films turn a profit, but individual investors often don’t see it, because they’re right at the end of the creditor’s line,” Conder explains. “But if one of our current projects, Steve Martin’s Shopgirl, does as well as Sofia Coppola’s Lost In Translation did, then our investors will see a return of around 450-480%.”

If that were the case, perhaps film partnerships would be more popular with the wealthy than other risky investments like derivatives or art.

Currently there is no legislation or any best practice guidance for the sell-side to ensure that clients are shown proof of thorough due diligence and risk assessment, and the relevant authorities have so far not shown interest in reviewing this. “There is usually a sponsor involved in projects who conducts the due diligence, but it is a very difficult area and investors need to be extremely careful,” TER’s Churchill warns. “There’s a lot of mis-selling in this business – these are very complex schemes and the risks are not always pointed out. Some IFAs don’t even know the risks themselves. I think most investors are told, ‘put in £1 and walk away with £1.50’, but life is never that simple.”

Our family office member concurs. “The golden times of high return, risk-free investment through tax deferrals has gone. Film investment always requires massive due diligence – you’ve got to know who you’re getting into bed with. That’s why it is so illiquid as an investment choice. A film investment is not an investment in film – it is an investment in a tax scheme.” Despite this, Churchill estimates that in 2003 UK investors pumped some £1.5bn into these schemes

The allure of the red carpet has clout among the wealthy and even with their close advisors, but involvement in the sector is held back by a lack of understanding or education. “People continue to think that film is fundamentally risky, but it is no more speculative that buying oil or commodity stocks,” Conder argues. “It is still outside most people’s financial understanding and there still aren’t enough experts in the field to guide investors.”

From my archive: Matt Sharp’s first solo album

11 Jun Matt Sharp. Photo courtesy of Honeycut07 from Flickr. http://www.flickr.com/photos/honeycut07/1079612022/sizes/o/in/photostream/

They say the devil makes work for idle hands and it’s true. I got to go to a private gig played by Matt Sharp, the first bassist in Weezer, and then meet and interview him – and then have drinks with him – because I was bored one night and, in a bet with myself I didn’t expect to come good, I emailed his PR asking for an interview. I thought if I ever got it, I’d sell the interview to Word magazine or NME; once the PR wrote back practically biting my hand off to interview Matt as he was coincidentally going to be in London, well, I couldn’t come up with a convincing enough back-out excuse, so I had to do it. I should have known that perhaps the PR’s keeness for a total music writing novice to have exclusive access to his charge probably indicated the music press’s relative indifference to him. No matter to me though: I was and remain a huge Weezer fan and I am probably a slightly bigger fan of Matt Sharp’s own project, The Rentals – so I was meeting one of my idols and getting an article to sell into the mix. Sadly, Matt is too niche and unknown as a solo artist for the British music press and I couldn’t shift the pitch. But I wrote up the interview for an internet culture magazine called No Innocent Bystanders – sadly long gone now – and here it is. Happy times.

Matt Sharp. Photo courtesy of Honeycut07 from Flickr. http://www.flickr.com/photos/honeycut07/1079612022/sizes/o/in/photostream/

Matt Sharp. Photo courtesy of Honeycut07 from Flickr. http://www.flickr.com/photos/honeycut07/1079612022/sizes/o/in/photostream/

Matt Sharp – Campfire music from a pogoing Falsetto boy

Matt Sharp’s solo album is collection of Nashville, Tennessee-flavoured regrets played out on lap steel and acoustic guitar- but he’s not holding his breath for the masses to understand his transition to grown-up country from Weezer’s pogoing bassist, via the celebratory Moog-bashing Rentals, finds Mel Stern

If they didn’t find him quite so hard to comprehend, Matt Sharp could have been the new poster boy for oldies’ rock mags like Q or Mojo. His current album, a continent away from the celebratory pogoing, football-chanting, sex-show haunting Rentals’ record Seven More Minutes, is the epitome of introspective; at the risk of patronising, it’s a coming of age piece. So quiet and wistful it’s at constant risk of sinking into the ether unless you strain your ears, it could be in the same ballpark as Elliott Smith or Lambchop minus the strings, recorded live from the Yorkshire moors. But the rags won’t let it be – since they can only remember Matt the pogoing, falsetto-screeching one from Weezer, the new one-man-and-his-woes brand isn’t quite Top of the Pops enough. It’s “too peripheral, too obscure, etc” for Word; “not really our bag” is the NME’s verdict. “It’s a songwriter’s album” reckons Matt’s UK PR, who hosted an invite-only gig for hardcore fans at Spitalfield’s tiny Redux last month to launch his European tour with fellow lo-fi’ers, Goldenboy. It’s a fair assessment.

Fresh out of a hideously personal legal battle with the Weezer camp over unpaid royalties in 2001, Matt took flight to a country house in Leipers Fork – a leafy outpost of Nashville, Tennessee soaked in Cherokee bloodlines, with horse farms and a little chicken ‘n’ ribs place by the name of Puckett’s Grocery, namechecked in Matt’s pre-album EP “Puckett’s versus the Country Boy” – to get all up close and personal with himself and “make a very raw record that attempted to tear down the barriers between what I wanted to say and the people that were listening.” At the risk of controversy, this record is to Matt what the under-selling, under-rated genius “Pinkerton” was to Weezer – and many still think Matt’s inclusion on that post-Seven More Minutes record was what made it such an unforgettable lo-fi gem.

Matt Sharp is a record heavily informed by surroundings, themselves informed by a wish to get away and figure out some depressingly familiar vicious circles. “When I came to London to record Seven More Minutes, I thought it wouldn’t take anything more than six weeks. The record label gave me carte blanche – there was no critical year, no deadlines, no restrictions. I was given Madonna’s credit card and the keys to the city with it, like, ‘you wanna make videos? You wanna bring in collaborators? Whaddya wanna do?’ says Matt. “So I was 75% done, and then I found myself slipping deeper and deeper into a kind of chaos that I didn’t expect, and I was suddenly in way over my head. It was more like some epic, like chopping my way out of the jungle in Apocalypse Now, only with a butter knife – overweight, with a big old beard, wanting to put a gun to my head. Afterwards I promised myself never to do that again, so I decided to remove myself to Leipers Fork, thinking this current record would take about three weeks…then over time I found myself in the same position again, the same scenarios again, being in this whirlwind where I couldn’t grasp the last 25%. I didn’t have a clue how to make this record, but I still didn’t think it would take me three freakin’ years.”

OK, so Matt’s solo effort doesn’t have the infectious acoustic hooks that Nordic due Kings of Convenience do, and though he’s clearly been working on some personal demons, he’s not tortured enough to be the next Nick Drake. Neither is he interested enough in raking in the dollars to be hyped like Badly Drawn Boy. And thank Christ for that: so quiet and wistful are daydream tracks like “Visions of Anna” (‘visions of Anna make me cry/the sweetness of our youth has died’), or “All Those Dreams” (‘driving your car for days/for fear of second place’) it’s at constant risk of sinking into the ether unless you strain your ears. Its strength is its sparing use of, well, everything, from lyrics, to melodies, to number of instruments; put it on at 3am after a night out, light a couple of candles and let it wash its way through your head. It’ll be sure to send you into the best night’s sleep you’ve had since you used your mum’s lavender Radox salts in the bath and put on brand new M&S cotton socks.

From my archive: Milan and Thomas Prenosil, inheritors of Switzerland’s Confiserie Sprungli

28 May One of many treats from Confiserie Sprungli. Flickr.com/avlxyz - http://www.flickr.com/photos/avlxyz/

One of my contacts tweeted recently about having found himself sat next to Lindt’s UK finance director at a dinner, which reminded me of one of my favourite interview experiences when I worked at Campden FB, a magazine for wealthy business families. I flew to Zurich to chat with Milan and Thomas Prenosil, who inherited the country’s oldest chocolatier, Confiserie Sprungli – the founding family of which is split into two branches, one of which is the better known Lindt chocolate brand. If you look on the back of one of those Lindt Excellence chocolate bars, you’ll see the manufacturer name ‘Lindt Und Springli’, with their family crest.

I came away from the interview with a huge box of chocolates and macaroons – not bad for a day’s work. Have a read.

One of many treats from Confiserie Sprungli. Flickr.com/avlxyz - http://www.flickr.com/photos/avlxyz/

One of many treats from Confiserie Sprungli. Flickr.com/avlxyz – http://www.flickr.com/photos/avlxyz/

Switzerland’s oldest and most revered chocolatier Confiser Sprungli has an international reputation for excellence, but remains a one-town operation as part of its strategy to maintain exclusivity.

The world-famous Bahnhofstrasse, in the heart of Zurich, was once the most expensive mile of real estate in the world. The traditional home of Switzerland’s private banks, with vaults of gold and silver sleeping underneath the tram lines, it is now somewhat of a baroque Rodeo Drive save for a little piece of Swiss history standing where it has for nearly 200 years  – the legendary confectioner and bakery, Confiserie Sprüngli.

One hundred percent owned and run by two family branches, Confiserie Sprüngli has supplied royalty and Zurich folk alike with the finest chocolates for 167 years, made by hand to secret family recipes. Having never traded outside of Zurich and with no intentions of going global, the people of Sprüngli’s home town will continue to enjoy almost exclusive access to that rare thing in this commoditised, homogenised world: a little bit of luxury and arguably the most exquisite chocolate to be had.

This is one family business that challenges the size/success ratio. In 2002 turnover reached €47 million through just 14 shops in Zurich. The family have always maintained that they will only ever operate out of Zurich and never branch outside Switzerland. That strategy may at first seem conservative, but is in fact a clever way to preserve the most important part of the Sprüngli brand – exclusivity – and has certainly not stopped a glittering reputation for excellence unravelling across the globe. Visitors to Zurich report their experience of Sprüngli in online travel guides as “out-of-this-world,” having to be “tasted before it can be believed”.

One may assume, then, that the secret to this family businesses’ success is clever marketing or expensive PR. In fact, the current sixth generation leaders – brothers Milan and Tomas Prenosil, 40- and 37-years old respectively – reject these ideas, sticking to the performance of their brand as the sole promotional tool. And it really works.

The Sprüngli story started in 1798 when David Sprüngli took up a trainee position in the patisserie Konditorei Vogel, in Zurich Old Town, owned by the famous painter Johann Vogel. Vogel had no children and in 1836, sold the patisserie to David, who with his son Rudolf, renamed it Sprüngli & Sohn and moved it to premises on the Paradeplatz (a site now adjoining the Bahnhofstrasse). The father and son team picked a strategic position in the Paradeplatz, hoping to make customers of the commuters from the railway station which was planned to be built there. However, their hopes were initially dashed when the station was built elsewhere. But a rash of construction at the site sprung up to create the Bahnhofstrasse, and the pair soon found themselves with a flourishing business in the best part of town. Chocolate production began at the Confiserie in 1845; the Sprüngli’s could not have predicted how pivotal a move it would turn out to be.

The Prenosil family joined with the Sprüngli’s when they settled in Zurich from Prague in 1968, and Milan and Tomas Prenosil’s aunt – their mother’s sister, Katja – married Richard Sprüngli, the fifth generation descendent of David Sprüngli. Richard and Katja never had children, but their nephews Tomas and Milan had grown up around the business, spending summers working there in their teens to earn some money, thus becoming the heirs apparent. In 1994, Richard appointed Milan director of marketing, communications and sales for the company, replacing his non-family predecessor who was retiring. Tomas, who had also been working in the factories for some time previously, followed his brother into management of the business two years later, becoming director of operations in 1994. Milan later became President and remains so today.

Both brothers sit on the board of directors alongside Richard and Katja, with an additional two non-family executives. CFO Werner Glauser has worked with the family for two decades, assisting the brothers in day-to-day management. Stanislaus Scherrer has worked for Sprüngli for ten years and will replace Glauser when he retires in 2004. A management and financial advisor, Dr Ernst Kilgus – a professor at the University of Zurich and the former president of the Swiss Banking Institute – completes the board.

Milan’s wife Sacha is not a board member but runs a two-person team within Sprüngli’s ‘Atelier’, designing specialty and seasonal packaging and gift ideas. The Confiserie changes much of its packaging monthly, and this is managed by the Atelier. It is a small but key area for the company as a luxury brand, and as the brothers say, important in times of market downturn when consumers still seek out small luxuries. High-quality, innovative products and packaging is the company’s lifeblood, and the backbone of its central philosophy: simply, to remain Switzer­land’s best luxury chocolatier.

The brothers were fortunate to have taken individual interest in the business from a young age, and as fate would have it, their paths in life had always been intertwined in more ways than one. “The funny thing is that Milan and I have always done the same things throughout our lives – at school, then when we joined the military, and now we work together,” Tomas recalls, fondly. “After the military I studied law and then my uncle asked me if I wanted to join the company. I had already been working in the factories in the summer, but I had kept my mind open until then because I was not sure what I wanted to do. After I finished school my interest grew and I noticed the interesting dynamics, even in this traditional business.” Milan adds that he had always wanted to join the business since childhood. “And somehow, we love it.”

Setting the tone for commitment, 87-year old patriarch Richard Sprüngli still comes to work at 6am, five days a week at the headquarters on the Bahnhofstrasse. This is testament to his love for the business he has grown but is also illustrative of his approach to the successorship process. When Milan and Tomas joined the company almost a decade ago, Werner Glauser and the brothers devised a rota between himself and the brothers for directorship that would allow his nephews to run the business their way, while allowing him to observe and mentor if needed. While Milan is the president and Tomas runs the operational concern, the brothers and Werner Glauser take six-monthly turns at the highest management position, a kind of CEO role. Unorthodox it may seem, but for a management team unified in their wish to see Sprüngli remain fully family controlled and successful with it, ensuring a smooth handover was simply a prudent risk management strategy.

The brothers agree. “The idea of the rota was to separate the operational and strategic parts of the business, and to renovate the organisation. After about five years our uncle realised where our strengths were,” says Tomas. The brothers note that they abhor the idea of family successors sitting on positions in companies they are incapable of fulfilling. “We earned our credibility when we were given responsibility at first, and then my uncle reorganised the management to create our positions for us,” adds Milan. “Until that point, it wasn’t clear that we could do it.”

It is clear at this point that they can do it, and that they make a strong team. One might expect a divergence of interests somewhere, or at least a glimmer of ego, but their unified ethics and passion for the company is heartening in a climate of corporate disarray. “[When we were handed management of the company] we took it very seriously; this is a gift, to sit here and run this company. Many family business successors our age are still hanging around, waiting to be told what to do,” Tomas explains. “I think what is very important when two brothers are running the family business is not to just sit on the board and take money from the company. We are responsible for this company, and even more so because we are not blood relations.”

The brothers’ biggest challenge this year has been increased competition from both local boutiques and national players in the food service industry, such as Swiss supermarket giants and national and international chocolate brands, breaking into the niche for luxury chocolates with luxury packaging but doing it at bargain-bucket prices. Rather than taking emergency cost cutting measures, the Prenosil brothers simply stepped up their existing competitive advantage – the strength of their brand. “These guys try to enter our niche, so competition is high. We need to be careful with this situation as it demands a very clear profile of our strategy, because we’re not as powerful in financial issues,” Tomas explains. “These companies put millions into marketing strategies that we don’t have. What we do have is high quality products and the best service, and that’s how we advertise ourselves.”

Tomas expresses his dismay regarding the way some of Sprüngli’s large, corporate rivals have recently tried to sell themselves as Sprüngli-esque boutiques. “Sometimes you see TV adverts where companies appear to be making their chocolates by hand. They are generating a brand profile and compared to us, their prices are low. People’s imaginations are provoked by this marketing, but we never want to market something that is not a reality,” he explains. “Our products really are hand-crafted and therefore impossible to sell at their prices.” Milan concurs; “Everyone’s gone crazy in the niche markets with beautiful packaging and chocolates that look handmade, but they aren’t. In difficult times like now, big players are more of a competitor because people think twice before spending a franc.”

Ninety-eight percent of the Swiss population recognise the Sprüngli brand, a surprising feat considering the lack of presence outside Zurich. The name is synonymous with the highest quality products, and indeed, such a reputation is hard to contain. The brothers are well used to receiving franchise enquiries from across the globe, and while some companies would jump at the chance to grow so quickly, the Prenosil brothers believe going global would see their company become the antithesis of everything it has stood for and destroy its unique sales edge. “Perhaps once or twice a month someone calls us from India, Japan or the US asking if we can deliver our products for a retail business or set up a franchise with them. In this sense we are very strict and we focus only on the consumer. Ours is not a wholesale or retail concept – it is always very private and personal,” Tomas says.

That doesn’t mean Sprüngli does not take advantage of good business opportunities. A small internet service set up in 1999 provides a mail order facility and delivers to the door within three days; a large percentage of its customers are situated on the Arabic peninsula. By way of making connections with the rest of Switzerland, the company will open its first non-Zurich boutiques in Switzerland’s Basle and Zug train stations by the end of the year. Again, small steps, but one can be sure they were planned and pondered upon for some time before the move was made, being as location is such a key facet of the brand. “We do not intend to pepper Switzerland with Sprüngli shops,” Tomas makes clear. “We’re not a McDonald’s.”

It is this concern for Sprüngli’s exclusivity that flavours every process and plan the company uses. Fresh cream and butter are the main ingredients of 40% of its product palette, delivered from the same supplier in the mountains just outside Zurich that the family has used for many years. This means the shelf life for many Sprüngli products is just 24 hours, and as a result, global expansion seems unrealistic. For one thing, the company would need to find equally reliable suppliers of raw products in the relevant countries, which in turn would make quality and freshness regulation difficult. Thus, as Milan and Tomas are all too aware of, the end of the famous Sprüngli selling point. “We are absolutely addicted to high end products, quality and innovation,” Milan points out. “We cannot transfer our croissant and multiply it by a few million every day while keeping it the size it is. We are in such a competitive daily business, a local business, that if the croissant is not good or the cake is not fresh, then our customers will go to someone else.

“But we are not so ignorant that we believe people will walk ten miles for our products, because they won’t.”

The Prenosils are definitely a long-term thinking team, putting the longevity of the business ahead of everything else. Their own succession is a long way off – Milan’s three children are all under 10 while Tomas is not a father. But they have made provisions to see off any threats to the total family ownership as it stands by setting up shareholder contracts, which they note as the biggest challenge they’ve faced in their tenure. Richard brought the subject up with the family three years after installing his nephews in their roles, feeling that the future of the family’s ownership should be protected against any unforeseen events. The contracts ensign all shareholders to strict conditions for selling their shares to other members of the family and outside sale is prohibited. “It was a natural process, especially for Tomas and myself,” Milan reveals. “The first priority is the company, its financial prosperity and independence, then the family and private life. That’s as it should be and I hope the way it always will be, but making that distinction is always the biggest problem for family companies.”

Tomas adds that as an owner-manager company, maintaining a healthy brand is a double-edged sword, being as important to the future of the business as it is to the shareholders’ personal reputations. “As a family business, we feel responsible for every customer, and we feel our products and service should be personal. When someone is not satisfied with our products, it feels personal – especially for our uncle, who shares the name. We feel the same but the name makes the deal stronger,” he reveals.

So, how do these emotional issues affect the internal workings of this family enterprise? “You need very strict rules when you work so closely with your family. You need guidelines and transparency. The reason many family businesses fail at the third or fourth generation is because of money and because people take from it what they want for themselves,” Tomas says. “We invest more or less everything we have in the company and we would never consider changing that to endanger the business.

“If we were not family run, we would definitely be more financially focused. Some of the things in this company are there for image reasons; if you were to analyse their cost, you might well cancel them. But we are going to keep them because they belong to the family, to the tradition and to Zurich – we want to retain its luxury and we are too long-term thinking to act that way,” the brothers agree with trademark honesty.

Milan and Tomas have also invested a lot of time researching their competitors, both at home and abroad. Tomas once spent six months touring US universities and companies, and has spent time in the East assessing the business there. If anything, these exercises helped the brothers to realise they were on the right track. “[When travelling] I realised there are three things that the Confiserie Sprüngli is always very focused on: continuity; high quality; and a long-term perspective and relationship with our customers,” recalls Tomas. “We never focus on one-day results like so many companies today – taking the long-term perspective has changed our company completely. Our uncle once said that the problems never change, but that it is how we solve them that changes. Vision and strategy is another thing; we have changed the way we run the company drastically from 20 or 30 years ago, adapting to the times, but our vision has stayed the same.”

The Prenosils note a final time their absolute belief in staying local as a cornerstone of their brand. “To have such a popular and exclusive brand known worldwide when we only operate in Switzerland is a very exclusive position,” Milan notes proudly. “Many brands that have gone international are not special anymore. We want to remain special.”

From my archive: David Gold, Gold Group International

14 May David Gold. Flickr/Leaders In Football

I’m often reminded of my very first profile for Families In Business magazine (now Campden FB) because I see David Gold, the interviewee in question, on Twitter most days. I’m often surprised that he seems to reply personally to so many of his followers – West Ham United football club fans, as they always seem to be – answering their queries on whether there are still tickets for this game or that game, what his opinion on this transfer or that booking is. In my experience most family business owners are not that reachable (his daughter Jacqueline is similarly active on Twitter), but David was a great first interviewee for my then-new features writing job, spending a couple of hours chatting through his life and times in his living room, then breaking out his scrapbook of anonymous letters from anti-semitic groups threatening to murder his children. I have vivid memories from the afternoon I spent in his home and below is the resulting profile I wrote.

David Gold. Flickr/Leaders In Football

David Gold. Flickr/Leaders In Football

David and Ralph Gold are known commonly as the ‘Porn Barons’ – but behind the headlines, Gold Group International is an exemplary family business model

David Gold, the UK’s most notorious ‘Porn Baron’, is sharing a nice cup of afternoon tea with me, telling me how much he loves his mum.

Broaching the part of his multi-million pound business from which he gets this well-worn media title, he politely asks that I refer to it as ‘top-shelf’ and not pornography, “because the word ‘pornography’ suggests something aggressive, which is not what we do.” It seems David and his brother Ralph Gold, owners of Gold Group International (GGI), are misunderstood.

Indeed, there is nothing of the Porn Baron in David Gold. He appears a modest man who repeatedly attributes his success to the strength of his family. He speaks of the enormous faith he has in his children Jacqueline and Vanessa, and Ralph’s son Bradley, as successors-in-waiting (despite admitting like so many other family business founders, “and this is confidential of course – my brother and I have decided that we intend to live forever, so that’s going to be a real challenge for the children…”); refers warmly to the kinship and love of his brother Ralph, the steely support of his mother Rose – and notes how the turbulent relationship with their father, Godfrey Gold, drove his desire to succeed.

Whatever one’s stance on the erotica market may be, GGI is a successful enterprise and an exemplary family business model. Led by the brothers, managed at ground level by their children and with Mum managing part of one of their biggest interests, even at 89 years of age – GGI is, at heart, just an old-fashioned family business.

Modest beginnings
Being born less than two years apart, the Gold brothers were in business together from an early age. Raised by their mother Rose in London’s East End, as a single parent family on a cleaner’s wage, pulling together to make ends meet was a necessity. David and Ralph had the effects of poverty indelibly imprinted upon them, borne with the hatred they endured as a Jewish family. “The poverty and the racism we experienced brought us closer together, and while most brothers of that age hate each other, we stopped fighting pretty quickly because we had to stand back to back,” David recalls. “We started off fighting kids, then older people, and before we knew it, we were fighting the world together. It was that family strength that inextricably linked us; it was us two brothers together in our effort to succeed.”

In the sporadic periods when the family was together – David and Ralph’s father Godfrey was frequently in prison for petty crimes or working in Northern England – their mother Rose ran a stall selling buttons and bric-a-brac from their front porch, enlisting her sons to sew the buttons onto pieces of card or take turns manning the stall. Meanwhile, David and Ralph’s uncle, David, had begun selling books and comics to retailers with their father, buying up surplus stock of Captain Marvel comics and a selection of ‘pin-up’ magazines for bargain prices, enlisting the brothers to deliver them across London. Before long, Rose had started stocking the pin-up magazines on the stall, and soon converted the front room of the family home into a fully-fledged newsagent’s shop. David and Ralph would later go on to start printing their own lines of these magazines to capitalise on the growing niche, publishing now infamous titles including print runs of the famous John Cleland books Memoirs of a Woman of Pleasure, its successor Memoirs of a Coxcomb, and New Direction magazine.

In the 1970s, David Sullivan emerged as a strong rival in the erotica trade, publishing more explicit magazines than the Gold brothers had chosen to such as Parade and Whitehouse (dangerously named after the staunch UK anti-pornography campaigner Mary Whitehouse). David and Ralph had bought up a distribution company, GBD, and due to the heavy demand for these more risqué titles, began to distribute these as well as their own range.

Profits ballooned – they had capitalised on a boom market at just the right time – but with that came a high profile that the brothers never wanted. The business was growing too fast for society to keep up with, and the British Establishment dug its heels in; Gold Star Publications endured a series of protracted investigations, lawsuits, customs and police raids on its shipments and offices to seize its titles under the UK’s Obscene Publications Act. Thousands of magazines were destroyed. David narrowly escaped a prison term under the Act, despite being tried twice for the same charge. Ironically, the advent of the Internet has eroded the call for printed matter in this field, and now top-shelf publishing constitutes just 1.5% of the group’s business.

From front room to high street
As the top-shelf market gradually became more socially acceptable, Establishment curiosity died down allowing the Gold brothers to become leaders in the erotica market. In 1972, capitalising on its new-found place in the minds of ‘ordinary’ people, Gold Star Publications made its first steps out of magazines and on to the high street with the purchase of two erotica shops under the name Ann Summers for £15,000. Three decades on, led by David’s daughter Jacqueline, Ann Summers is Gold Group International’s best performing brand bringing in UK£8 million (nearly half the group’s total profit) in 2002, operating 99 outlets across the UK, an online mail order arm, a lingerie arm, and a party plan arm – the largest of its kind in the world. Not content with that, Jacqueline furthered the GGI high street offensive in 2001 by leading the buyout of underwear chain Knickerbox.

Now a diversified group, the secret to the GGI’s success is clear: it is about exploiting niches as they emerge and keeping the competition out, facilitated by sheer hard work. A key trait, surely residual from their experience of poverty, has been to stop giving other companies money; for instance, as well as publishing magazines, GGI also prints and distributes them itself through its own companies, rather than outsourcing these expensive necessities – eliminating the risk of failing service providers while keeping money outflows to a minimum.

David and Ralph have created an empire that makes money from its own operations and can cut itself amazing deals; it is a lean and mean strategy, and one that makes the Golds one of Britain’s most successful business families, listed 67th in the Sunday Times’ 2003 Rich List.

Leap of faith
One part of the business, however, completely defies this philosophy and illustrates the risk David and Ralph were willing to take for something close to their hearts. In 1993 they bought a 50% stake in the near-bankrupt third division football club, Birmingham City (BCFC), along with their business partner – one-time arch rival David Sullivan – who bought the other 50%. The kid brothers, lodging with a surrogate family in Birmingham for a time when Rose was unable to cope, had watched the side play at home to rapturous support from the ‘Kop’ stalls, filled with dedicated ‘Blues’ fans. As a boy, David had been offered a contract to play for West Ham FC Under-21’s, but missed his chance because his dad would not sign the consent forms; for him, it was a second chance to play, if only from the director’s box and not the pitch. The risk worked out and in a tidy decade, the club hit the Premiership, sitting comfortably as this article goes to press at its highest ever position, fourth. Mum Rose continues to head up BCFC’s Senior Citizens club alongside Sullivan’s mother, Thelma.

More aggressive in their approach than many other family companies, David and Ralph are quick to thwart competition before it presents a threat or even exists – the alliance with David Sullivan being one of their most valuable defence strategies yet. When a team of rival bidders emerged for Ann Summers, the Gold brothers approached them to cut a deal; each side was to produce an envelope containing the maximum they wanted to bid, and the one offering the least would step down from bidding, receiving the difference in cash between their offers as compensation. The Gold bid was £5,009 more than their rivals, and they snapped up the chain within a week. Similarly today, they have continued to defend Ann Summer’s unmatched position without hesitation, aiming to have a store in every town and realising this by opening 30 new stores every year. Even locally, the Golds take no prisoners; not content with having a store at the east end of London’s Oxford Street, they opened a second store at the west end, “just to dissuade someone from thinking about it”. David explains: “Everybody looks at us longingly, at our figures and our sales growth. So, while no one has yet emerged as serious contender, we want to stifle any competition before it gets a chance, and we want to do that quickly – though I’m not paranoid about it,” he adds. “People have done that in the past at their peril; it’s like buying up the world’s supply of tin so that you can charge twice as much for it.”

Ready for G2
David has much enthusiasm about the year ahead. In 2004, David reveals that Ann Summers will begin to expand onto the European continent, working its way in via British tourist and ex-pat hotspots like Marbella in Spain (where an Ann Summers shop is already installed). Gold Air will take delivery of a US$55 million order of five new Lear Jets; projected group profits for the year are upwards of £20 million.

Behind much of David’s excitement is his belief in the next generation, and the strategy in place to nurture them as they help build the family empire. As well as Jacqueline leading Ann Summers, her sister Vanessa is director of a range of GGI companies including Ann Summers Lingerie, while Ralph’s son Bradley is director of Gold Air International (while Bradley’s sister does not work in the business). All three worked their way up through the ranks: Jacqueline started out in 1979 at Ann Summers as a wages clerk, going on to launch Party Plan in 1981 and becoming Director in 1993. For now, it seems clear who is poised to take the mantle as head of the business after David and Ralph. “Jacqueline has emerged as the current principal, being Chief Executive of our most lucrative company,” David admits. “What I can say is that everyone is bright enough to do it, and I am hugely optimistic about the future of our family.

He continues; “Sometimes in family businesses, the children inherit the company but they aren’t particularly business minded. I’ve seen children inherit a business when they’d rather be on the golf course – they’ve almost been forced into it, and that’s sad for the business because it is then led by a person who doesn’t share their predecessor’s passion for it. That’s not true of our family: our successors are actually instrumental in our success as we speak and are being carefully groomed, given greater responsibility and autonomy by the day. We aren’t fragmented by the jealousies you so often see in family businesses. We’re a very warm family, and not just because my brother and I have worked together for so many years.”

But there have been some destructive forces to contend with. David and Ralph’s father had at one time tried to trick the brothers out of an equal share in the business. They created a holding structure and each took three shares, signing the contracts separately, without witnesses. Only when the brothers challenged their father on a financial query did he move to maintain his superiority by blurting out that they did not have any right to argue their point, since he had fashioned Ralph’s contract to sign over two of his three shares to his father. “I think he feared that he would lose his patriarchal position in the business because of us holding shares; he saw his sons evolving but didn’t want to stop being the Alpha Male,” David recalls. “He realised that my brother and I were inseparable in our determination to succeed, and he was right to see that – we didn’t even see it then.”

Godfrey’s plan was foiled anyhow because the contracts were not legally binding, and the brothers went on to form GGI without him. Turning this traumatic experience into a valuable lesson, the family will from 2004 begin formalising the succession and share transfer plan. Each of the four Gold children will receive exactly 25% of the business.

Lastly, I ask David the mandatory question all business families love to hate. Would you ever sell out? “We have been approached many times by companies wanting to take us to market, but it is a question of need. People go to the market because they need money to expand at a faster rate; Ann Summers Retail, for example, is growing at 50% a year – we couldn’t expand any faster than we already are,” he explains. “We are a family business and have an excitement about remaining so because we have very, very good people ready to take over. So no.”

That’s perfectly understandable.

 

Campden FB: South Korea’s chaebol companies and an epic governance fail

14 Feb Korean men with sunglasses, 1904. Flickr/Cornell University Library

I had the opportunity to go back over my 2003 article for Campden FB about South Korean family businesses – called chaebol, and with a similar meaning to Japan’s keiretsu – when I read today that the owning family of Samsung is mired in a multi-billion dollar tussle for inherited company shares. The BBC reports today that Samsung chairman Lee Kun-Hee is being sued by his brother Lee Maeing-Hee for shares in the group’s life insurance and electronics businesses totalling a value of £396m; Maeng-Hee accuses his brother of stealing his share of the…er…shares and alleges they were put in trust to be doled out between the brothers “according to law”. Family quarrels of that kind are usually about power – who’s the favourite kid, who really deserves to own the shop, etc – and I always ask myself why these arguments arise when there is an entire industry crafted around helping rich families fix legally-binding contracts to ensure when daddy dies, everyone knows who’s getting what.

Korean men with sunglasses, 1904. Flickr/Cornell University Library

Korean men with sunglasses, 1904. Flickr/Cornell University Library

The real story for me, though, is that inside South Korea, no one really has much to say about the corruption, fraud, in-fighting, poor management and blood-over-ability inheritance mores of chaebol companies. The guy that prompted me to write my story on chaebol is Chey Tae Won, in 2003 a rising star in his family’s company SK Global – the third-largest industrial group in the country. He had been serving time for ‘serious accounting fraud’ against the family business. Fast forward to January 2012 and he’s back in the news for all the wrong reasons: he is now indicted on charges of embezzling funds from affiliates of one of its companies to cover investment losses made by himself and his brother.

Rewind a bit to 2008 and there’s more evidence that South Korea doesn’t fight this family business corruption too hard: that was the year in which Tae Won was pardoned by president Lee Myung Bak of his conviction for fraud. A fund manager at a Seoul-based asset management business commenting on the latest accusation against Tae Won, now chairman of the group, told Bloomberg that while investigations into the allegation may have a ‘psychological’ impact on the group’s hideously tangled web of companies (as defines the chaebol concept – and gives rise to so much corruption), ‘it shouldn’t affect the day-to-day running of individual businesses’. South Koreans are so used to value-destroying wrangles inside the owning families of their chaebol, they barely make a ripple in the financial markets and are actually very expected. The holding company’s stock actually rose a little on the news.

Read my 2003 piece for a quick primer on chaebol and the “Korea Discount”