[Herald Interview] We think in generations, not in quarters: Merck chairman

It all started from pure scientific curiosity when Merck decided to develop liquid crystal in 1903.

The organic substance, however, remained in the research and development territory for more than 50 years until it started to be applied to wrist watches, calculators and computers -- products that ushered in a new era of technology in the 20th century. Therefore, the German company based in Darmstadt, did the same with the organic light-emitting diode, known as a future technology for the 21st century.

“OLED was not profitable at all from the beginning. But we took (a) long-term view for 10 years (thinking) that it may be the technology of the future. So, let’s go for it and we were right,” said Frank Stangenberg-Haverkamp, chairman of E. Merck KG, the parent company of Merck, in an interview with The Korea Herald last week. Merck, a life science and health care company, dominates the market for liquid crystals for displays. It is also a leading maker of OLED materials.

But what made such long-term investment successful? Family, says the chairman.

“It is the advantage of being a family-owned business because the family does think very long term. We don’t think in quarters, we think in generations,” he said.

“We want to make sure whatever activities (we) have, it is ready for the future, ready to develop for the next 20, 30 years.”

The chairman was referring to Merck’s unique governance structure that keeps the company under the control of the family but separates its management from the ownership. Merck is the oldest family-owned company, with more than 350 years of history.

Its holding company, which has a 70.3 percent stake in Merck, is a joint stock company with money invested by 153 family members, who are the descendants of Heinrich Emanuel Merck, one of the founding fathers of the company.

They hold a combined 70 percent stake in Merck, all inherited from their parents. They are not allowed to sell it, keeping them as investment of their ownership. Their shares are passed on to their children equally, regardless of gender.

Through a general meeting, they elect 12 representatives for the family board who speaks for the interests of the family. The head of the board becomes the chairman of E. Merck KG.

Stangenberg-Haverkamp, the 11th generation of the founding family, was appointed as the chairman of E. Merck KG in 2014.

The most important job of the family board is to pick members for the board of partners, which the company calls the connection point between E. Merck KG and Merck. The board selects top managers, such as the CEO and CFO of Merck, who are not family members.

The purpose of having non-family members as top managers of the global company -- which makes 15 billion euros ($16.9 billion) a year -- is to secure its leading position in the market.

Complex business like Merck cannot be run only by family members, he said, stressing that the family needs outside help.

“Empower non-family members to help you to run the business. Merck has already (started that) in 1930s,” he said. “You have to put them on the same level as the family members and that is what we still do.”

The only way a family member can work at Merck is to first have their abilities proven at other companies. Only then can they apply for a top position. However, this seldom happens.

“What we don’t want is a normal family member to work as a chemist in the company because immediately he (or she) would have conflict in the company. He is a family member, he’s got an access to myself, top board and his colleagues don’t have that,” said Stangenberg-Haverkamp, who once shared with Samsung’s heir apparent Lee Jae-yong the merits of separating management from ownership.

“I know Mr. Lee, I met him. Mr. Lee was very interested in how we structured in and he wanted to learn (from it). I think his mindset has realized it, that it (Samsung) has to be changed,” the chairman said, calling him “a serious businessman.” Samsung is Merck’s major client in the field of biopharma and displays.

“He will sometime comeback and would probably change things. But it is a process. It takes time. But in the end, everybody will go this way, simply to make sure that the business can develop itself free of a single family. Family can control it, but one thing to control the business is not to run it. (If not) it could lead into conflict.”

Asked of his impression of family feuds over management rights at South Korean conglomerates, the chairman stressed the importance of keeping family ethics in the business.

“(I tell my family that) you didn’t work for it, don’t forget that. So you are not entitled to anything, you just inherited,” he said. “But if you want more, you have to work for it.”

Stangenberg-Haverkamp was visiting Seoul for a two-day trip to meet Merck’s clients in Korea and young Korean employees to present them with Merck’s future strategy.

Merck operates in more than 150 countries with 66 subsidiaries around the world. The company launched its operation in Korea in 1985. Its annual revenue reached 1.16 trillion won ($1.03 billion) last year.

Before joining the family board, the 68-year-old chairman worked as an investment banker for 20 years in London.

The job he hopes to do as the chairman of the holding company is to make sure that the business is safe, not necessarily in terms of bigger profits. Staying modest is the key to sustaining the legacy of Merck and continuing its quest for future science, he added.

“Ferraris, private jets and yachts, we don’t have that,” he said. “The moment you become greedy -- taking the money off -- and you start to jeopardize the business. It (the lesson) is not from me, it’s the work of 10 generations before me.”

By Cho Chung-un (christory@heraldcorp.com)