Entrepreneurship + Innovation = Growth | July-December 2011
E
Entrepreneurship + Innovation = Growth | July-December 2011
Exceptional
All together now
The Co-operative Group’s
Peter Marks on the
ethics of success
The name
of the game
The
perfect
Javier Pérez Dolset,
Spain’s king of digital
entertainment
Talking points
What happened when
some of the sharpest
minds in business got
together in Dubai
blend
How Howard Schultz put
the spark back in Starbucks
e
W
Welcome
Editor Molly Bennett
Assistant Editor Laura Evans
Senior Designer Lynn Jones
Art Director Rachel Creane
Picture Editor Johanna Ward
Design Director Ben Barrett
Production Gary Chambers
Account Director Emma King
Production Director John Faulkner
Managing Director Claire Oldfield
CEO Martin MacConnol
For Ernst & Young
Marketing Director, SGM, EMEIA Penny Cooper
Senior Marketing Executive, SGM, EMEIA
Victoria Howell-Richardson
Exceptional is published on behalf of Ernst & Young by
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Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
You’ve probably noticed that Exceptional has a new, livelier look and feel.
We think it reflects the colorful personalities and diverse experiences
featured inside the magazine and hope you agree.
What does it take for a company to have “staying power”? Should we only
apply the term to those that have been around for many decades, or does it
have a broader application? Longevity matters, of course: with age comes
wisdom, and with wisdom comes the ability to take a step back and view the
business in the context of history, using this knowledge to adapt to changing
economic and market dynamics.
But even relatively new companies can have staying power. Perhaps
they’ve spotted a gap in the market that will bear fruit for years to come.
Or maybe they signed up to a company charter that guarantees its values
will be upheld no matter who is at the helm. Businesses with staying power
keep one eye on the spreadsheets and the other on the future. It’s about
continually looking for ways to solidify your base and reach ever higher.
One company that combines all these traits is Starbucks, which has made
the journey from a small Seattle coffee shop to one of the world’s most
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Marlies van Wijhe takes us on a tour of Van Wijhe Verf, a family business
CEO Howard Schultz tells us how he’s turning the company around.
We also speak to Javier Pérez Dolset, founder of Grupo Zed, who has
taken advantage of the ballooning market for web and mobile apps. And
that has stayed independent in a sector of huge multinationals.
Sustainability is key to having staying power. Wally and Debbie Fry of Fry
Group Foods tell us how their vegetarian products can
© 2011 EYGM Limited. All Rights Reserved.
make a positive impact on the planet, and Henrik Fisker
Cover photography John Keatley/Redux
EYG no. CY0164.
of Fisker Automotive explains why “energy efficient” and
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and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research
or the exercise of professional judgment. Neither
EYGM Limited nor any other member of the global
Ernst & Young organization can accept any responsibility
for loss occasioned to any person acting or refraining
from action as a result of any material in this publication.
On any specific matter, reference should be made to the
appropriate advisor.
“luxury” don’t have to be mutually exclusive terms.
We also visit the Ernst & Young EMEIA Entrepreneur
Of The Year Forum in Dubai, where some of the world’s
top business leaders — and a criminal profiler — met to
exchange notes on operating in today’s global marketplace.
This is just a taster of what’s inside. I hope you enjoy
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not necessarily the opinions of the global Ernst & Young
organization or its member firms. Moreover, they should be
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your new-look Exceptional.
Julie Teigland
Strategic Growth Markets Leader,
EMEIA,
Ernst & Young
Exceptional July–December 2011
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Contents
04
12
Profiles
Heart and soul
Starbucks’ founder,
Howard Schultz, explains
how he brought the
global chain back from
the brink
Streets ahead
The Co-operative Group
sticks to a strong ethical
code — and, says CEO
Peter Marks, this has
stood it in good stead
during the recession
26
30
The view from here
From Brick Lane to
the heart of the City:
brokerage firm Execution
Noble’s Nick Finegold
explains why he hooked
up with a Portuguese
investment bank
Unguilty pleasure
38
In living color
42
Ethical edibles
The days of slow, boring
electric cars are over.
Meet Henrik Fisker, who
is on a mission to make
sustainable driving sexy
We talk to Marlies van
Wijhe, who represents
the fourth generation to
run Dutch paint company
Van Wijhe Verf
From Fry Group Foods’
base near Durban, South
Africa, Wally and Debbie
Fry are raising awareness
of the environmental
impact of meat
“To be an entrepreneur
is to be a gamer. It’s a
challenge. We confront
the unknown every day”
Javier Pérez Dolset, CEO of Spanish video game
company Grupo Zed
Exceptional July–December 2011
30 38
52
Analysis
22
2
12
48
52
60
Northern light
From 2 hotels to 170
(and counting):
Petter Stordalen on
Nordic Choice Hotels’
exponential growth
across northern Europe
A greener cleaner
The L’Arbre Vert
eco-cleaning brand is
going global, says Michel
Leuthy, CEO of its parent
company, Novamex
Banking on change
Kazakhstan’s banking
sector, like many other
nations’, went through
a period of turmoil. The
head of the country’s
National Bank, Grigory
Marchenko, explains how
he solved the problem
18
36
46
56
The difference
defines us
Using Ernst & Young
research, criminal
profiler Thomas
Müller asks whether
entrepreneurs are
a breed apart
Chain reaction
Franchises are eternally
popular, but can they
be considered to be
entrepreneurial?
Leading
the charge
We report from
Ernst & Young’s
Entrepreneur Of The
Year Forum in Dubai
A shifting balance
of power
Regulars
01
Welcome
10
Agenda
62
Doing
business in …
64
Beyond profit
An introduction
to the exceptional
entrepreneurs featured
in this issue
Events, programs
and research from
Ernst & Young that will
help your business grow
Tax, cultural and regional
tips for companies looking
to expand into Africa
Anita Gerhardter of
spinal cord research
foundation Wings
for Life
As Russia becomes more
powerful economically,
what opportunities does
this open for its historical
trading partners?
Exceptional July–December 2011
3
Profile: Starbucks
T
Heart
& soul
here’s a “No U-Turn” sign on the
windowsill of Howard Schultz’s
office. A little battered, it stands out
among the coffee memorabilia and
family pictures. It arrived at Starbucks’ Seattle headquarters,
Schultz explains, when he returned as CEO in January 2008
— a gift from his friend Richard Tait, creator of the board
game Cranium. When asked what it means, Schultz smiles
and says: “There’s no going back.”
Schultz’s return after an eight-year hiatus was a bold move
prompted, he asserts, by an emotional attachment to the
company he had built from a small chain of Seattle coffee
retailers into a global empire of 16,000 stores. In 2008,
national economies stood on the brink of collapse and
there were huge internal problems within the company.
As he explains in his recent book, Onward: How Starbucks
Fought for Its Life without Losing Its Soul, “I could not be
a bystander as Starbucks slipped toward mediocrity.”
The company had been expanding at great speed and
attention to detail was slipping. “We were,” he admits,
With Starbucks, Howard Schultz convinced
millions of consumers that they needed coffee
and a place to hang out. In 2008, he returned to
the helm of the struggling company to remind
us why we fell in love with the brand
words Roshan McArthur_ photography John Keatley/Redux
Exceptional July–December 2011
5
Profile: Starbucks
Starbucks has gone
from one store in
Seattle to 17,000 in
more than 50 countries
“There isn’t anything I would
not do to enhance and preserve
this company”
“measuring and rewarding the wrong thing for a number
of years, which was speed of service transactions and not
quality.” As a result, sales fell fast, along with the stock price.
“The world did not know how bad it was,” he now says.
The process of saving Starbucks required Schultz to
use one of his greatest assets: his tendency to speak
from the heart. “As men,” he suggests, “we are somehow
imprinted or conditioned to be strong, aggressive, macho
and not emotional. And I think that, in a crisis, whether the
cataclysmic financial crisis or a crisis of our own making,
the most important thing to be is authentic.” So, against
the advice of many colleagues, he spoke frankly to his
employees. In an emotional speech to almost 10,000 store
managers and company leaders in New Orleans at the height
of the economic crisis in October 2008, he talked about love.
“It’s not a word you would expect, either from a man or in
the context of a business environment,” he explains. “I said,
I’ve been asked why I came back as CEO. I came back because
of love, how much I love the company, how deeply I feel about
the responsibility we have to the 200,000 people and their
families who are relying on us as leaders. There isn’t anything
I would not do to enhance and preserve this company. Other
than my family, there is nothing I love more than Starbucks.
“I think it is incumbent upon leaders,” he continues, “to
understand that the responsibility and burden of proof is on
themselves to create trust, sensibility, a sense of purpose
and a shared commitment. I don’t think that 20 years ago I
would have had the self-awareness, or the sense of myself,
to be able to unveil that because I was too insecure.”
This was a situation that called for discipline and process —
as well as perspective. “Growth and success have a tendency
to cover up mistakes,” he explains, “and most entrepreneurs
are always looking forward and never in the rearview mirror.
You never go back and look at what you did wrong, because
there’s so much opportunity and the wind is at your back.
That’s a great time in a company, but it’s not sustainable.”
decisions, such as closing every store in the
US for retraining one evening in February
2008. But it also meant sitting in long
meetings, going through the operational
side of the business with a fine-toothed
comb and asking painful questions. It
meant making tough decisions, closing
stores and losing employees, including replacing the majority
of his top executives. “The key issue,” he says, “was finding
people with like-minded values.”
Ultimately, he believes the main reason for the turnaround
in Starbucks’ fortunes was the resiliency of values in the
Back in charge
It is also unusual for someone who
grew a business from its earliest days
to go on to manage his or her company
through all phases of its evolution,
especially in a turnaround situation.
Creating a brand demands one skill set,
but returning to right a wayward ship
is something founders are not known
for. Yet, there have been exceptions,
such as Steve Jobs of Apple and
businessman Charles Schwab.
For Schultz, returning to lead the
company meant using his ingenuity
as an entrepreneur to make maverick
Forty years of Starbucks
Starbucks opens
its first store in
Seattle’s Pike
Place Market
Schultz convinces Starbucks’ founders to
test the coffeehouse concept in downtown
Seattle and the first Starbucks Caffè
Latte is served
Il Giomale acquires Starbucks’
assets and changes its name
to Starbucks Corporation
1971 1982 1984 1985 1987
Howard Schultz joins Starbucks as
director of retail operations and
marketing. Starbucks begins providing
coffee to fine restaurants and espresso bars
Schultz founds Il Giomale, offering
brewed coffee and espresso beverages
made from Starbucks coffee beans
Starbucks is the first privately owned US
company to offer a stock option program
that includes part-time employees
Establishes the Starbucks
Foundation, benefiting local
literacy programs
Acquires Seattle
Coffee Company
1991 1995 1997 1999 2003
Total stores
116
Begins serving Frappuccino
and Starbucks ice cream
Partners with Conservation
International to promote sustainable
coffee-growing practices
Total stores
7,225
Total stores
677
6
Exceptional July–December 2011
7
Profile: Starbucks
“This circle of doing the right
thing for your people and your
customers will ultimately
produce more profit”
Starbucks’ new
logo, which it
has unveiled
for its 40th
anniversary
company and its guiding principles.
“We had always intended to create a
balance between profitability and social
conscience,” he says, “and underneath
that I recognized, especially in the past
couple of years, that success is best when it’s shared.”
These are issues Schultz is passionate about, resulting,
at least in part, from an upbringing in which his parents
taught him “what it means to do the right thing.” Onward
is loaded with references to community, humanity, social
consciousness, responsibility and personal connection, as
well as respect, loyalty, trust and honesty. Community, in
fact, is what he sees as Starbucks’ backbone.
“In terms of our society and the way technology has
evolved, I think there is a growing appetite for human
connection,” he explains.
“I think we’ve been able
to provide the physical
environment and bring
people together.”
Traveling the world over
to visit his stores, Schultz
says: “The Starbucks
experience is as relevant
in Kuwait as it is in Seattle
or Dallas because,
universally, we all have this
desire for human contact.”
This sense of community
Opens first Farmer
Support Center in
San Jose, Costa Rica
also means that he must share his success with his people,
all of whom are called “partners.” In spite of calls from at
least one investor to cut employees’ health care benefits,
he flatly refuses. “The essence and fabric of the company is
linked to those benefits,” he told us. “We would completely
fracture every aspect of the culture we have, which is the
only competitive edge we have.”
More to be done
Financially measured, Schultz has been as successful as a
turnaround CEO as he was as the architect of the Starbucks
phenomenon. But he is quick to say there’s still much to be
done. “We’re as good as we’ve ever been,” he says, “but not
as good as we need to be. There’s no victory lap, there’s no
celebration. If there’s anything we’ve learned from the past
few years, it’s that the hubris and the feeling of invincibility
was a virus at Starbucks. We can’t allow that to ever enter
the building, enter the halls, enter the fabric of the company.
“I’m not good at celebrating anyway,” he adds.
According to Schultz, a seismic change is under way in
the business world, brought about by three factors: the
economic downturn, the development of social and visual
media, and an increased consumer interest in business
ethics. With a massive decline in government spending on
Launches Starbucks VIA Ready Brew Coffee.
Opens East Africa Farmer Support Center
in Kigali, Rwanda
2004 2006 2009 2010
Launches the first paper beverage cup
containing post-consumer recycled fiber,
saving more than 75,000 trees each year
8
Free unlimited Wi-Fi via Starbucks
Digital Network in US stores
Viewpoint
social services, he believes that companies
like Starbucks have to lead the way in terms
of social responsibility, finding unique ways
to provide safety nets in their communities
when governments can no longer afford to.
“There are certain constituents who don’t
like to hear that,” explains Schultz, “because
it could mean less profit for them. But this
circle of doing the right thing for your people
and your customers will ultimately produce
more profit. But you have to believe it and
you have to sustain it.
“We’re not a perfect company,” he adds.
“We can’t do all the things we want to do.
We’re going to make some mistakes. But
the lens through which we’re trying to make
decisions and manage the company is the
lens of humanity, and trying to do the right
thing. We’re willing to take the shots if that’s
the price of admission.”
Tribal knowledge
Being the leader of a public company
has lonely moments, says Howard
Schultz. “You are constantly creating
a road map, a vision, an aspirational
path for people, and there are moments
when you also need to talk to someone
yourself, but there are not a lot of
people you can talk to.”
When he does need to talk, he
calls on organizational consultant
Warren Bennis, a friend and mentor
for 30 years, as well as a small group
of entrepreneurs, including computer
magnate Michael Dell, fellow Seattleite
Jim Sinegal of Costco and Les Wexner
of Limited Brands.
“We’re all in the same position, as
entrepreneurs who built companies
from the ground up,” he says. “We each
have a much different level of personal
commitment and emotional connection
to the enterprise than a hired CEO. It’s
tribal knowledge of what it takes to go
down the road less traveled.”
The making of
an entrepreneur
Bryan Pearce, Americas Director, Entrepreneur Of The Year,
Ernst & Young Boston
Entrepreneurs come in many forms.
There’s the accidental entrepreneur
who stumbles upon a great idea, the
intrapreneur who creates his or her
own company from within a larger
one, and the classic founder, an
innovator who finds a whole new way
of doing business.
But what makes a great
entrepreneur? Perhaps the most
significant quality is the ability
to radically transform a business
model or an industry. Successful
entrepreneurs have great vision and
a passion for creation, a focus that
extends well beyond making money.
They also recognize that plans often
change from their original concept.
They know that the world isn’t static
and they adapt as customer needs and
the competitive environment change.
Innovation is
synonymous with
staying power
Entrepreneurs with “staying
power” have the humility to recognize
that, no matter how impressive their
own skill sets, they need people who
can complement those skills. Smart
entrepreneurs are not afraid to hire
people who are more skilled in certain
areas in order to strengthen the
overall company.
A good understanding of finance is
vital. Successful entrepreneurs know
that finding the right sources and
capital structure for each stage of
the business is critical, as is having a
realistic view of how long it will take
to hit a milestone. Often, a technically
savvy or sales-driven entrepreneur
will benefit from a professional CFO
who can help assess what could go
wrong and ensure that the capital
requirements of the company are
well planned.
Just as every person does not
have all the expertise that a company
needs, few companies have the
complete range of skills they need
to be successful. As a result, forging
partnerships, or even acquiring other
businesses, may be necessary to
realize the entrepreneur’s vision
and strategy.
While every decade brings a new
set of challenges to entrepreneurs,
two stand out today. One is the power
of globalization and the associated
demographic changes, such as the
growth of Asia Pacific or the global
middle class. The second is the way in
which social media is affecting “social
commerce.” Good and bad customer
experiences are now shared instantly.
Successful entrepreneurs know how
to leverage these phenomena to help
build enviable customer relationships.
Most importantly, leading
entrepreneurs know there is no
“finish line,” even when they’ve
reached what appears to be the
pinnacle of their markets. Innovation
and reinvention, fueled by customer
insight, are synonymous with
staying power.
More information
For more on our research into the DNA of an entrepreneur, see page 18. For
a copy of this new report, email victoria.howell-richardson@uk.ey.com. To learn
more about any of the Entrepreneur Of The Year programs in the Americas,
please contact Bryan Pearce, Americas Director, Entrepreneur Of The Year, at
bryan.pearce@ey.com. To find an EOY program near you, visit ey.com/eoy
Exceptional July–December 2011
9
A
Agenda
Essential reading: the latest thought leadership publications from Ernst & Young
How we can help you grow your business: events and activities from Ernst & Young
Investing in new
market leaders:
Ernst & Young’s
services for
fast-growing
companies
Ernst & Young’s
growth markets
network advises some
of the world’s most dynamic public and
private companies. Anchored by more than
300 network leaders across 100 countries,
our teams know what it takes to fast track
a business from inspiration to growing
enterprise to market leader.
Ernst & Young Entrepreneur Of The Year
For nearly a quarter of a century, our
prestigious Ernst & Young Entrepreneur
Of The Year (EOY) awards program
recognizes the exceptional men and women
who create the products and services
that keep the global economy moving
forward. Awards are given to entrepreneurs
who have demonstrated excellence and
extraordinary success in areas such as
innovation, financial performance and
personal commitment to their businesses
and communities. EOY gives these fastgrowth businesses an opportunity to join an
influential business network, make contacts
and build new relationships. To learn more
about the program, visit ey.com/eoy
Global IPO
trends 2011
Trends in capital
markets activity can
be difficult to predict,
especially in times
of market volatility.
Learn about the latest
IPO market trends
and issues relevant to companies planning
an IPO in Ernst & Young’s seventh annual
report on the global IPO market.
Wealth under
the spotlight
Tax policy and tax
administration
around the world
are experiencing
unprecedented levels
of change, driven
in large part by the
global financial crisis. This report highlights
some of these global changes and the
subsequent impact being felt by high net
worth individuals.
10
Finance forte
This study provides
insight into the future
requirements of the
group CFO position
and the skills and
capabilities needed
by those in the role,
as well as those who
aspire to the role. It is based on a survey of
more than 530 group CFOs and their direct
reports from across Europe, the Middle
East, India and Africa, as well as a plethora
of in-depth interviews with leading CFOs
and future finance leaders. Please note
that an executive summary for high-growth
companies is available on request.
Competing for
growth: how
business is crossing
boundaries to
succeed
This research seeks to
test and build on the
findings of our first
Competing for growth
report, which showed that high-performing
companies are focused on four drivers
of competitive success: customer reach,
operational agility, cost competitiveness
and stakeholder confidence.
Next-generation
innovation policy
This report
demonstrates that
innovation policy
around the world is
becoming increasingly
complex, and such
complexity is even
more visible in a multi-level government
framework such as the European Union.
An analysis of the emerging trends in
markets and industries shows that a
well-conceived innovation strategy must
use a broader set of tools.
Comparing global
stock exchanges
Business operations
and capital flows are
becoming increasingly
globalized as new
centers of economic
strength and
innovation develop
around the world. Future market-leading
companies are springing up in places such
as China, India and Eastern Europe, in
addition to the mature economies of the US
and Western Europe. While the majority of
companies choose to list on their domestic
stock exchange, business leaders are
increasingly considering accessing public
capital in a foreign market. This report is
designed to be an objective, fact-based
comparative tool for business leaders
weighing up exchange alternatives.
Exceptional goes digital
Want to be able to enjoy the latest
edition of Exceptional on the move?
Now you can. The January–June 2011
edition is ready and available at ey.com
(under the Services/Strategic Growth
Markets section). You will also
soon be able to download it from
EY Insights on your iPad, iPhone or
Android device, through our new
global thought leadership application
(coming soon).
Ernst & Young Entrepreneur
Of The Year Forum 2011
The Ernst & Young Entrepreneur Of The Year
Forum gives EOY alumni the opportunity to
meet and network with other outstanding
EOY winners and finalists from across EMEIA
(Europe, Middle East, India, Africa). The
2011 event took place in Dubai in the Middle
East and focused on exploring new horizons:
new ideas, new markets, new sources of
finance and new technologies.
To learn more about the event, visit
eoy-forum.com
Initial public offerings (IPO)
Ernst & Young has guided thousands of
companies on the journey from start-up
to listed company to major market leader.
While we thrive on helping companies to
deliver successful IPOs, we also recognize
that an IPO is not right for everyone. That’s
why we help you to evaluate the pros and
cons of an IPO, demystify the process,
examine the alternatives and prepare you
for life in the public spotlight. To learn more
about our IPO services, email Penny Cooper
at pcooper2@uk.ey.com
Venture capital and private equity
Ernst & Young’s Venture Capital (VC)
Advisory Group and Private Equity (PE)
teams work with leading VC and PE firms
and their portfolio companies in all global
hotbeds. They offer creative approaches
to issues facing fast-growth companies and
their investors. They provide quarterly and
semi-annual insight, as well as market data
to help VC and PE firms, their partners and
portfolio companies achieve their potential.
Email Tricia O’Shea at toshea@uk.ey.com
Cleantech
As climate change moves up the corporate
agenda, cleantech investment is reaching
record levels. Ernst & Young recently
launched its Global Cleantech Center, which
offers a worldwide team of professionals
who understand the business dynamics
of cleantech. We intend to become the
service provider for emerging cleantech
market leaders around the world and to help
multinational corporations understand the
cleantech landscape and the opportunities
that it brings. For more information on
Ernst & Young’s cleantech capabilities, email
Robert Seiter at robert.seiter@de.ey.com
Family businesses
Family businesses make a significant
contribution to EMEIA’s economies. Our
latest European family business report
concluded that they outstrip non-family
businesses across several key financial
measures. Our research also indicates
that family businesses have a longerterm perspective, flexible and focused
governance, superior talent management and
stronger customer relationships.
Ernst & Young has a history of working
alongside family businesses, providing both
personal and company, as well as domestic
and international, advice and services. For
more information, visit ey.com/familybusiness
Contacts
Ernst & Young has teams throughout the
world dedicated to working alongside
fast-growth businesses. Visit ey.com to
find your local contact, or contact any
of the EMEIA team members below.
Europe
Julie Teigland
+49 621 4208 1151
julie.teigland@de.ey.com
Russia and the CIS
Alexander Ivlev
+7 495 705 9715
alexander.ivlev@ru.ey.com
Middle East
Michael Hasbani
+971 4 312 9141
michael.hasbani@ae.ey.com
India
Farokh Balsara
+91 22 4035 6300
farokh.balsara@in.ey.com
Africa
Zanele Xaba
+27 82 901 0901
zanele.xaba@za.ey.com
Financial Services
Geoffrey Godding
+44 (0)20 7951 1086
ggodding@uk.ey.com
Exceptional July–December 2011
11
Profile: The Co-operative Group
Founded in the 19th
century, the Co-operative
Group’s member-centric
model has stood it in
good stead during the
downturn. Group CEO
Peter Marks explains his
vision for this growing
British business
words Kath Mortimer_ pictures Images courtesy of Cooperative Group
Streets ahead
Manchester’s
Corporation Street in
the 1950s. The building
in the foreground is
the headquarters
of CWS – now the
Co‑operative Group
12
Exceptional July–December 2011
13
Profile: The Co-operative Group
The Co‑operative
grows some of the food
it sells in its shops,
which will be run from
its new 20‑acre site in
Manchester (below)
“I said about five years
ago that we needed
to change or face going
out of business. And
we did change”
P
eter Marks, Group CEO of the Co-operative Group, is a fan
of soccer analogies. “To use one in relation to my career, I’d
say that I’ve played in the second and third division for most
of it,” he says. “But I’ve always wanted to play in the Premier
League. Now we’re back in it.”
Back in it he most definitely is. The Co-operative Group,
based in Manchester, England, currently boasts an annual
turnover of £14b (US$23b), employs 114,000 staff and
operates more than 5,000 retail trading outlets that serve
more than 20 million customers a week. With core interests
in food, financial services, travel, pharmacy, funerals and
farms, the group is one of the few businesses that have
flourished in the credit crunch and come out fighting.
But it has not always been this way. The consumer-owned
Co-operative Movement has, in the past, been fragmented
14
Exceptional July–December 2011
and uncompetitive. Market share in its food retailing
business, historically the Co-operative’s strongest division,
hit a low of 4% at one point. This was a dramatic decline from
the Movement’s halcyon days of the 1970s when one in four
people in the UK shopped in Co-operative stores.
“They called it the Co-operative Movement,” says Marks,
“but it didn’t cooperate and it didn’t move much. Bigger
competitors ate us alive. The likes of Sainsbury’s and Tesco
consolidated and grew, but we stayed where we were. And
we got eaten alive.” He recognized that something needed
to be done. “I was one of the people who said about five
years ago that we needed to change or face going out of
business. And we did change.”
Company man
When Marks speaks, people listen. Indeed, there are few
better placed to comment on the Co-operative’s fortunes
than he is; he joined as a shelf stacker at the age of 17 and
has been with the business ever since. “I have never had
to move to satisfy my career ambitions,” he says. “I have
been fortunate in that the Co-op has given me the business
education, training and opportunities to further my career.”
The Co-operative has always invested heavily in its
employees and in the wider community. Its strong social
conscience has its roots in the Movement’s formation
in 1844, when a group
of 28 workers, tired of
seeing families, friends and
neighbors exploited at work,
decided to form a new kind of
business, and the consumer
cooperative was born.
Unlike other businesses,
it is owned not by a small
group of shareholders, but
by its customers. “We have
six million members at the
moment,” reveals Marks,
“and we hope to make that
20 million, which is a third of
the population of the UK. Why wouldn’t people want to join
the Co-operative? It’s a great organization to be a member
of and you also get a dividend on what you buy.”
Members have to invest only £1. “That’s how cheap it is,”
says Marks. “And for that, eventually and if they were so
inclined, members could join our board of directors and give
me a hard time every month.”
The Co-operative’s membership is at the heart of its
operations and is just one way in which the organization
differs from a public limited company. “The PLC model is
15
Profile: The Co-operative Group
Co-operative by numbers
3,000
360
53b
800
2002
250
The number of its food stores
and supermarkets
“We are very concerned about
the planet we are working on.
I suppose it sounds pompous in
a way, but it is absolutely true”
The number of its travel agencies,
serving three million people a year
How many prescriptions its pharmacies
dispense each year
The number of its funeral homes
The year in which Co-operative Financial
Services was founded
How many Co-operative Bank branches
are on Britain’s high streets
An illustration of the
planned Co-operative
Group headquarters
in Manchester, due
to open in 2012
16
Exceptional July–December 2011
designed for one thing and one thing only: shareholder
value,” says Marks. “If you buy shares in a PLC, you just want
it to make your shareholding more valuable and that’s what
drives boards of directors in the PLC world.”
It is not what drives Marks. For him, a successful business
is about looking after all three groups of stakeholders: its
shareholders — or, in the Co-operative’s case, its members —
its employees and the communities in which it operates.
A social purpose is also a key component of Marks’
definition of a successful
business. “I don’t just mean
box ticking and providing
fancy, glossy CSR reports;
I’m talking about real social
responsibility — putting
things back into society,”
he asserts. This is where
profit comes in. “Profit
is the lifeblood of any
business. If we concerned
ourselves solely with ethics
and values and principles,
then we would be the most
ethical organization in
the corporate graveyard.
But if you are making a
profit, then you have the
ability to do other things
that you think are socially
responsible — what we call
social goals.
“We think long term. We
are very concerned about
the planet we are working
on. I suppose it sounds pompous in a way,
but it is absolutely true.”
There are two events that contributed
most directly to the turnaround in the
Co‑operative’s fortunes. The first came in
2007 when the Co-operative Group merged
with United Co-operatives. Marks describes
this as “transformational.” It delivered about
£70m (US$114m) of extra profit from
the business synergies of that merger in
year one and gave the group the capital for
much-needed investment in its retail stores.
Further growth
The second event was the 2008 acquisition
of the Somerfield chain and its integration
into the Co-operative’s food retail arm.
Within 12 months, the Britannia Building
Society had also been merged into the
Co-operative’s financial services arm, which
includes the Co-operative Bank and Smile,
the internet bank. “In this world, and in the
markets within which we operate, scale is
of crucial importance,” explains Marks. “We
were subscale in both our banking and food
businesses and we had to put that right.”
The Somerfield deal was a particular
coup, coming as it did at the height of the
credit crunch. “We had to go to the City [of
London] to raise £2.5b (US$4b): £1.6b
(US$2.6b) to buy Somerfield, and the
rest to refinance the business,” he says.
“It was quite an undertaking when the banks
were shutting up shop and not lending any
money. But we never considered not doing
it. We knew it was the right thing to do. And
the fact that we did raise that money in
those circumstances is testament to what
a good deal it was.”
So where next for the Co-operative?
Marks refuses to rule anything out. “We
haven’t got any specific plans to open any
retail food stores outside of the UK; we’ve
got plenty to do here at the moment,” Marks
says. “But we do have relationships with
other co‑operatives internationally and we
do talk to them from time to time about
possible tie-ups, so never say never.
“There are two ways a business can go:
forward or backward. We intend to keep the
momentum going and we are going to carry
on working hard in all of the things we do.”
By this time next year, Marks and co. just
might be in the Champions League.
Viewpoint
Growth options for
private companies
Simon Allport,
Senior Leader, North West, UK, Ernst & Young
There comes a point in every
company’s development when
difficult decisions have to be made.
Regardless of the size of operations,
the nature of the industry or the
extent of a company’s ultimate
ambition, such choices represent a
defining moment in an organization’s
history and will prove central to its
future success. The corner shop
owner pondering whether to take on
an extra member of staff; the SME
CEO presented with the possible
takeover of a rival; the multinational
considering launching operations
in a new jurisdiction — all of these
are examples of businesses at a
crossroads, united by the uncertainty
of which way to go next.
The good news for
private companies
looking to expand
is that there are
many opportunities
for growth
The good news for private
companies looking to expand is
that there are generally numerous
opportunities for growth. The
difficulty is in deciding which to take;
the best choice is almost always to
follow multiple paths simultaneously.
The key for private companies is to
have a clear strategic plan for their
future business development.
Inevitably, growth means access
to fresh capital. However, the banks
may not always have the appetite
to provide the levels required, as
most decisions are based on the risk
profile of a business — especially
in the current climate. Margins are
still tight in the lending market,
so the banks must consider every
application carefully. The full picture
tells a different story, as there is an
increasing number of alternative
funding sources to businesses with
the aspirations to grow.
Alternative funding providers
include institutional investors,
private capital (private placement),
commercial paper, private equity
and capital markets. Private equity
especially has the ability not only to
introduce additional capital through
innovative capital structures but
also to add operational expertise
through industry contacts, external
knowledge and fresh ideas for
growth. Institutional capital also
remains a very active market, with
investors constantly seeking new and
innovative ways to structure.
As the world’s economies move
slowly out of recession, the bottom
line is this: in order to expand
and achieve their full potential,
businesses will require additional
capital. The choices ultimately made
by private companies to grow should
reflect their strategic intent and help
them see, or realize, potential in what
will be a growing market.
More information
Please contact Simon Allport at sallport@uk.ey.com. Managing capital is just one
part of our approach for companies seeking funding: the Ernst & Young Capital
Agenda. To learn more, visit ey.com/transactions or, to request a copy of The
essential guide for fast-growth companies: managing capital or The essential guide
for fast-growth companies: private equity, email susannah.webster@uk.ey.com
17
Analysis: The DNA of the entrepreneur
The
difference
defines us
18
Do successful entrepreneurs share the
same DNA? Based on Ernst & Young
research, leading criminal psychologist
Dr. Thomas Müller is not convinced.
Beyond a shared aptitude for handling
risk and pressure, he believes they are
as individual as the rest of us
D
words Damian Reilly
r. Thomas Müller has made a career
of getting inside the minds of terrible
people. FBI trained, he has spent the
better part of three decades traveling
the world working on some of the
highest-profile criminal cases in modern
history. He was part of the team that
psychoanalyzed serial
killer Ted Bundy in
person and, only a week before he spoke
to Exceptional, he was sitting across a
table from Josef Fritzl, trying
to understand how a man could be
capable of such crimes.
Müller’s abilities are in demand:
governments and police forces around
the world call on him regularly to help
solve cases that have baffled them for
years. But he was happy to accept
Ernst & Young’s invitation to look at recent research into what
sets an entrepreneur apart from the rest of society, and apply
his experiences and expertise to it. He presented his findings
at the EMEIA Entrepreneur Of The Year Forum in Dubai.
“Statistics do not explain human behavior,” he says.
“Human beings are too complex for that.”
Over the course of our conversation, Müller makes clear
his avowed belief that all humans are individuals — that there
is no one-size-fits-all way to understand any group of people,
let alone entrepreneurs. He does, however, believe that there
is one set of circumstances in which entrepreneurs will come
to the fore: in crisis.
“My personal opinion is that a good entrepreneur will
show his or her personality not when the sun is shining and
not when the business is running well,” he says. “They show
their qualities when it is raining. They show their qualities
in a crisis situation. That is the big difference between an
entrepreneur and a traditional CEO or a CFO.”
He adds that three of the successful entrepreneur’s
defining characteristics reveal themselves in crisis: the
ability to withstand pressure beyond the point at which
most people would compromise for the sake of security;
an aptitude for risk; and the ability to adapt quickly to new
circumstances. “It is because the entrepreneur is a little bit
closer to the idea, he is closer to the risk,” he says. “We do
not become wise by always being successful. We become
wise by learning how to solve problems and learning from
situations in which we did not have any success.
“One of the key issues in a crisis situation is the willingness
for development,” he continues. “In a crisis situation, some
“A good entrepreneur will show
his or her personality not when
the business is running well,
but in a crisis situation”
people will just want to get back to how things were before.
They will have a harder time than people who say ‘If we go
one step further, what’s the opportunity to be exploited?’”
In discussion of entrepreneurs, Müller will cite leaders
such as Socrates, Martin Luther King Jr. and Mother Teresa
as people who changed history with what he believes is
the entrepreneurial spirit — that is, that they were unafraid
to work tirelessly toward their objectives, all the while
constantly surmounting the apparently insurmountable.
That said, he is well aware of the pressures of leadership
and believes, too, that entrepreneurs should caution
themselves against the possibility of early burnout. “During
my training at the FBI academy in Quantico in Virginia, we had
a rule: if you were in a leading position — such as guiding a
task force team — for a year or more, you were burned out for
the rest of your life,” he says. “At that time, 17 years ago,
Exceptional July–December 2011
19
Analysis: The DNA of the entrepreneur
as a young police officer I didn’t
understand that law. You have to understand
that a taskforce presides over an outstanding
situation: there is a lot of media attention, a
lot of decisions have to be made, a lot of
personnel changes. There are no weekends,
there are no Sundays, no holidays, no
birthdays. It is always continuing, the
relentless routine, making decisions over and
over again.”
Müller, who worked with FBI task forces
in Canada and throughout Asia and Europe,
uses as an example the last task force with
which he worked. The team comprised 30
married people. By the time the mission was
completed, 28 were divorced. “That is what
In his own words
Managing failure
Dr. Thomas Müller on what sets entrepreneurs apart
In the past four to five years, many institutions have
asked: “Where can I get training to deal with failure?”
We have lost the ability to deal with crisis situations.
If you understand the logistics of a crisis situation,
you can handle it. If you don’t know the rules, then you
can’t. People who suggest a particular course of action
in a crisis situation will be better off than those who don’t
do or say anything. At the 1968 Summer Olympics,
Dick Fosbury created the flop when competing in the
high jump, climbing 22 centimeters higher than his
competitors. Sometimes, you have to create a flop — or
People who are calm in a crisis
know it will come to an end.
It’s about analyzing a situation
and making a decision
something different or unique — to best cope with a
particular scenario or situation.
If you can deal with fear, then you will be successful. If
you didn’t have fear, you wouldn’t bother getting into an
elevator — you’d just jump out of a window. Fear is a part
of our lives. You just have to understand it.
As an entrepreneur, if you know how you react to a
crisis, then you can take control. Honest communication
with people is key to a crisis situation. If a ship captain
tells you about a big storm cloud on the horizon and says
“We’re doing all we can to avoid it,” that’s better than
another who says everything is OK.
Calmness is important. People who are calm in a
crisis know it will come to an end. It’s about analyzing a
situation and making a decision. To train yourself to be
cool, you should think of a fly watching you to see your
reaction when you’re angry. A CEO I worked with would
scream and shout at his employees and then go to his
office and cry like a child. He called me and asked for my
help to address the problem and I taught him the “fly”
technique. He realized how bad he looked and later sent
me a letter thanking me for my help.
It’s not the words you speak but the actions you take
in a crisis that define your character as an entrepreneur.
20
2
9
pressure does,” he says. “One of the biggest
challenges any entrepreneur will ever face
is keeping the balance across the various
aspects of his or her life. It is not easy.”
Müller is very aware that entrepreneurs
are special people — they provide a vital
service to any economy. Because of that,
they are people whom the state should take
care to foster and nurture. But he is insistent
that they are as individual as fingerprints.
“Entrepreneurs are very special people,”
he says. “There are 100 people at this
conference. But look around at them and
you will never see two people wearing the
same shoes and the same glasses. We
are all different.”
15
“One of the biggest challenges any
entrepreneur
will face is keeping the balance
456854
across the various aspects of his or her life”
4
7
300
Crunching the numbers
What Ernst & Young’s DNA of the entrepreneur report uncovered
Earlier this year, Ernst & Young surveyed
more than 700 entrepreneurs to look for
common traits. Here’s an overview:
5. Passing it on: almost three-quarters
of those surveyed said they were involved
in supporting other entrepreneurs.
1. Entrepreneurs start early: more than
50% were in business before the age of
30, and almost 10% before 20.
6. Motivating factors: “Making a
difference” was the most common
response when asked what motivated
them professionally. “Making money”
was the least common.
1076
1
639
5 4130
1000
4
89723
2. Actual work experience: more than half
of surveyed entrepreneurs began their
careers in traditional employment before
going it alone. Most said this period was
vital for gaining experience.
3. Repeat chances: the majority of
respondents said they were serial
entrepreneurs, responsible for launching
at least three companies.
4. Money can hinder: 4 out of 10
respondents said nothing held them back
when it came to starting out, but those
who did face obstacles cited money most
frequently as the chief barrier to progress.
456854
7
The number-one characteristic that
entrepreneurs agree makes a difference
is their passion. This is coupled with
their drive to overcome obstacles —
nearly two-thirds had experienced a
setback in their time as an entrepreneur.
In line with Thomas Müller’s findings,
perhaps it is this attitude to risk and
to failure that sets them apart as
business leaders.
1000
7
To request a copy of the DNA of the
entrepreneur report, please email
victoria.howell-richardson@uk.ey.com
Exceptional July–December 2011
456
21
Profile: Grupo Zed
The game
of his life
Self-proclaimed geek Javier Pérez Dolset
is leading Spanish company Zed to the
forefront of the digital entertainment sector
words Dale Fuchs_ photography Matias Costa/Panos Pictures
“Never lose the passion
for what you do. The
day that it becomes
routine, in this sector,
you’re dead”
22
A
s a child, Javier Pérez Dolset was
a proud video game addict. He
played 1980s classics such as
Laser Blast and Dragster every
chance he got — even if it meant losing sleep.
By age 12, he had set five world records
on his Atari console, a primitive ancestor
of modern game consoles, and even made
headlines in his native Spain when he won a
world Laser Blast championship.
“I’m a total geek,” says Pérez Dolset, now
41, with a boyish grin. But when he was not
blasting flying saucers, this athletic young
Spaniard somehow found time to do his
homework. And that’s not all.
Today, Pérez Dolset does more than play
video games. He controls a digital game and
entertainment empire, Madrid-based Zed,
which has 1,500 employees in 61 countries
and R&D centers on five continents.
Zed is perhaps best known as the parent
company of Pyro Studios, maker of the hit
series Commandos: Behind Enemy Lines,
a World War II strategy game. Designed by
Pérez Dolset’s younger brother, Ignacio, it
sold more than five million copies worldwide.
The company also made headlines with
2009’s Planet 51, a €53m (US$77m)
animated film about little green monsters
living in a picket-fence world similar to
1950s America. The award-winning Englishlanguage film, Spain’s second-biggest box
office smash on record, grossed US$350m
through ticket sales, related games, licenses
and other tie-ins around the world.
But the company is also the world’s leader
in mobile content distribution, with a global
network of 130 wireless operators. It is
currently pointing its joystick in the direction
of social gaming, with new Facebook apps
such as Sports City and TV Studio Boss, a
favorite of Pérez Dolset’s daughter.
Pérez Dolset’s passion for entrepreneurship
grew in parallel with his love for computers.
He started his first business with friends at
age 19 — a desktop publishing service using
1990s software such as QuarkXPress and
Freehand. In those days, he used the profits
to buy sail and surf equipment.
In 1989, he and his brother asked their
father for a loan — “less than €100,000,
completely insufficient” — to start a video
game distribution company. They bought
licenses in the UK for titles such as Tomb
Raider and Titus the Fox and sold them in
Spain. In 1992, they had five staff and sales
of €1m (US$1.45m). Four years later, sales
had climbed to €35m (US$65m).
Exceptional July–December 2011
23
Profile: Grupo Zed
Left: Pérez Dolset
imbues the company
with his personal
passion for gaming.
Below: Figurines from
2009’s animated movie
Planet 51
Viewpoint
The back office’s
pivotal role
Stephane Kherroubi, Financial Accounting Advisory Services Leader,
Ernst & Young EMEIA
“We sold in the mornings, we processed
orders in the afternoon and at night we
packaged and sent them,” Pérez Dolset
recalls. “At Christmas time, we worked from
9:00 a.m. to 5:00 a.m. the next day.”
In their scant free time, he and his team
also launched a pioneering internet service
provider, Teleline, which they eventually
sold to Spanish telecommunications giant
Telefónica. The profit became the seed
capital for Pyro Studios and LaNetro, a
leading interactive entertainment portal.
Pyro Studios, which has developed eight
games and sold 10 million copies, was a
dream come true for Ignacio, a movie fanatic
who peppered the Commandos series with
allusions to classic films such as The Dirty
Dozen. “He watches about two or three films
a day,” Pérez Dolset says.
Since 2002, Pérez Dolset and his brother
have turned the family business into
a multiplatform giant, acquiring mobile
content pioneer Zed from TeliaSonera in
2004, British competitor Monstermob
in 2006 and UK-based Player X in 2009.
Zed — Pérez-Dolset’s company adopted
the name at the time of the acquisition —
is one of the few cutting-edge technology
firms that have managed to sprout on
Spanish soil. In fact, the country’s low-tech
business culture has posed the greatest
obstacle to the company’s growth.
First, it hampered efforts to obtain
financial backing. “For technology projects,
there aren’t any investors in Spain,” Pérez
Dolset recalls. “We had to look for financing
24
simulation, on his PlayStation. But he remains
a gamer at heart. “To be an entrepreneur is
to be a gamer,” he says in his office at Zed
headquarters in Madrid, where legions of
young, jeans-wearing programmers develop
the latest apps at computer stations decked
with action figures and toys. “It’s a challenge.
You confront new situations every week.
Here, we confront the unknown every day.
I am now pretty good at strategy.”
“We sold in the mornings, processed
orders in the afternoon and at night
we packaged and sent them”
abroad.” Once there, he had to overcome
negative stereotypes. For instance, many
investors were surprised to learn that
an international hit like Commandos was
produced in Spain. “The prejudice still exists
today,” he says. “Today, the name of Spain
isn’t the best calling card, but 10 or 15 years
ago, it was much worse.”
Spain’s technological lag also made hiring
creative staffing more difficult. “There’s a
lot of isolated, self-taught talent in Spain,
but they’re not used to working within a
system,” he says. “You have to train them to
work as a team, to structure the work. We
still look back and say, ’This is a miracle.’”
Now, as CEO and Co-President of Zed,
Pérez Dolset does not have much free
time to practice his latest craze, a race-car
Strategy king
Indeed, Pérez Dolset remains immersed
in strategy — but not the type you might
find in a video game. The sort of strategy
that concerns him is how to thrive in a
technology-driven field that innovates,
evolves and moves as quickly as the click of
a mouse. And he is succeeding. Despite the
economic crisis, Zed grew by 26% in 2010.
This year, growth has picked up to as much
as 40%. The secret of his staying power?
“Never lose the illusion or passion for what
you do,” he says. “The day that it becomes
routine, in this sector, you’re dead.”
And so, when he isn’t playing with his
children or practicing his swing on his golf
simulator, Pérez Dolset pores over market
statistics and bets on the future. What does
he see in his crystal ball? Not the exploding
apps market — that’s old news for a strategist
like him. Apps are fine for capturing clients,
he says, but they aren’t huge moneymakers.
In his view, the future belongs to mobile
commerce and marketing. He believes the
industry will really take off in two years’ time
and will eventually be worth trillions. That’s
why Zed has invested tens of millions of euros
in recent years on developing marketing tools
that are “super-targeted in terms of personal
information and geographic location.”
It seems this former Laser Blast champion
isn’t content to live on past glories. His
challenge now is to stay one step ahead in
one of the world’s most dynamic industries.
If you run a high-growth business,
you constantly deal with many
urgent matters, such as hiring new
staff, conquering new markets or
streamlining the corporate culture
of new acquisitions. But as you race
forward at a dizzying pace, it is
important to look over your shoulder
at the back office.
Some firms are so intent on
developing their businesses that they
fail to establish secure and efficient
accounting and finance practices.
They think those dull bookkeeping
or finance issues are secondary
to increasing turnover. And then,
months or years later, they discover
that key accounting or finance
topics have been missed or not well
A sound back-office
function will help
you deal with
external issues
managed — but they were too busy to
notice. You can avoid an unpleasant
surprise by attending to those backoffice issues. They form the backbone
of long-term growth. They are what
give you staying power.
A streamlined accounting and
finance system can help you make
decisions, anticipate changes and
prevent problems more easily —
especially if you are dealing with
a complex group of companies
operating in multiple sectors around
the globe. Can you rely on your
accounting and finance data? How
do you evaluate and benchmark the
performance of your teams in India or
Brazil? How do you know if your R&D
in other far-flung outposts is yielding
the right results?
The first step is to homogenize and
align your information systems for
all segments of your company. Then
you must track the right indicators —
profitability, gross margin, cash flow,
working capital — and calibrate them
regularly. You can then compare the
results with home-office standards
in time to make decisions that will
ensure your future growth. With
the leading accounting and finance
practices in place, it’s also easier
to detect problems early on and
challenge local management.
A sound back-office function will
also help with external issues, such
as the multiple tax requirements
and regulations around the world.
This can avoid, for instance,
reassessments and payouts. Strict
compliance is also important in all
communications with local regulatory
agencies and demanding investors.
While expanding your operations,
it’s right to rely on a secure, aligned
system that keeps you up to date on
regulatory and legal changes both at
home and abroad. These measures
might not be as exciting as a new
acquisition, but they will keep the
engine of growth going.
More information
For more information on IFRS conversions, IPOs, transactions, due diligence,
remediation services and services to support financial executives in
implementing new standards and improving their financial communication,
please contact Stephane Kherroubi at stephane.kherroubi@fr.ey.com (EMEIA)
or Ken Marshall, Financial Accounting and Advisory Services Leader,
at kenneth.marshall@ey.com (Americas).
Exceptional July–December 2011
25
Profile: Execution Noble
“There wasn’t an institution
of our size that did more to
reinvent itself over the past
two years than we did”
The view
from here
Nick Finegold’s
entrepreneurial
approach has taken
brokerage firm
Execution Noble far.
Now, its partnership
with a Portuguese
investment bank is
opening up further
opportunities
words James Gavin_ photography Elke Meitzel
Nick Finegold (left)
chats with colleagues
near the firm’s
Paternoster Square
offices in London
26
Exceptional July–December 2011
B
efore Portuguese investment bank Banco Espirito
Santo de Investimento (BESI) acquired a 50.1%
stake in Finegold’s securities firm Execution Noble
in December 2010, brokerage clients would find
themselves shooting pool in the bar of the firm’s office in the
Truman Brewery building in London’s über-cool Brick Lane.
Now ensconced in his second-floor office in the London
Stock Exchange’s Paternoster Square HQ, Finegold appears
comfortable in his surroundings in the heart of London’s
financial services establishment. Yet the 46-year-old founder
and chairman of Execution Noble boasts a résumé that
is closer to buccaneering entrepreneurs such as Richard
Branson than the pin-striped investment bankers he might
mingle with in the corridors.
Shifting to the sober corporate environment of BESI’s
Paternoster Square offices was no big deal when the time
came, says Finegold. “The old office was a huge area of
competitive advantage when we were very small, but when
we got to a certain size and our pool-playing days were over,
it was easier to do business here — and that’s, after all, really
what we care about.”
BESI’s decision to buy into Execution Noble — a rare recent
deal in the UK brokerage space — speaks volumes about
Finegold’s single-minded vision. The former head of equity
sales at Deutsche Bank had determined early on that he
27
Profile: Execution Noble
Teaming up with
BESI has given Nick
Finegold and Execution
Noble many more
opportunities
Simple, says Finegold: by moving into higher
margin markets — the developing markets
and corporate and advisory services. “I don’t
believe there was an institution of our size
that did more to reinvent itself over the past
two years than we did,” he says. “We sold
asset management, bought Noble, and then
we did the third leg with Espirito so that
we are not entrenched in a UK/European
mature equity market. We leverage off our
core competence rather than rely on it.”
“As a result of this deal, we are
in the markets of today and the
markets of tomorrow”
would set out on his own by his mid-30s, and 10 years
ago established Execution as a pure agency brokerage
servicing large institutional clients.
“Basically, we helped champion the cause of nonproprietary environments,” says Finegold. “We highlighted it
as an issue more than a decade ago and it is again relevant
within the context of today’s City [of London].”
Over time, Finegold broadened Execution’s focus, hiring
a research team, developing a bond-trading capability and
acquiring Noble, a Scottish mid- and small-cap specialist
investment bank. Under his watch, Execution mutated into
an integrated securities, capital markets and advisory firm,
competing with the world’s biggest and most profitable
multinational investment banks.
The decision to team up with BESI reflects the stark
changes wrought by the financial crisis. “If you run your
business prudently and save for a rainy day, and then at the
precise point your competition is brought to its knees, bailed
out and then comes knocking on your door to hire your staff,
it quickly sinks in that life’s not fair,” says Finegold. “You can
28
Exceptional July–December 2011
either complain about it or change things
— or as we think, create competition rather
than complain about it.”
BESI’s investment banking franchise allows
Execution Noble to offer a wider range of
equity and fixed-income products through its distribution
platforms. Finegold points to a cultural and strategic fit
between the two groups: both are entrepreneurial and both
evolved from client-focused cultures.
“What’s fascinating about the strength of the Portuguese
culture is that they just go out and get it,” he says. “They are
everywhere, from Macao to Mozambique to India, and that
entrepreneurial spirit permeates this organization.”
With BESI’s backing, Execution will be able to service
clients in some of the world’s most exciting emerging
economies. Part of the logic for doing the deal was to make
the local businesses relevant globally, and to build on its
existing strengths in large- and mid-cap UK and European
stocks. “As a result of this deal, we are in the markets
of today and markets of tomorrow,” says Finegold. “For
example, we now have 200 men on the ground in Brazil.”
The European large- to mid-cap space has been through
difficult times and is burdened with structural overcapacity.
How can Execution prosper against this gloomy backdrop?
Global footprint
The initial growth under BESI’s ownership
will come from linking Brazilian businesses
with customers in London, New York and
Hong Kong. “There are some simple,
quick-win things,” says Finegold. “It is
about monetizing the geographic spread
of interesting businesses and product lines
that we have.”
As Execution Noble builds a global
footprint with its Portuguese partner,
Finegold will continue to focus on the
essentials that helped him build a successful
investment bank from scratch. Self-effacing
to the last — making light of a degree in
textiles and a false start in his first job at
research and consulting provider Wood
Mackenzie — Finegold stakes his business
success on credibility. Dictum meum pactum
(“My word is my bond”) is at the core of his
investment philosophy.
“In our business, you have to like people
and have an interest in people, and that
is what the best salesmen do,” he says.
“They understand that they aren’t just
selling stocks and shares; they are selling
credibility. It’s all about their ability to be
believed above the competition. And very
often you do that not by telling people what
you’re good at, but by telling people what
you're not so good at.”
Whether it is operating out of Brick Lane
or Paternoster Square, credibility remains
the key to Execution’s success story.
Viewpoint
Preparing
for exit
Gavin Jordan, Financial Services Transaction Advisory Services,
Ernst & Young
To ensure maximum value from a
sale, there’s no escaping the need for
rigorous planning. At the very least,
this means a three-month process
from the point at which you press
“go.” But leading practice suggests
the management team should have
been thinking about it for at least a
year before that. It takes that long
to ensure that you can present the
business in its best light.
Everything has to be demonstrable:
a robust business plan, a track
record of past performance — with
up-to-date financial and operational
information and a consistent set
of KPIs — and a clear strategy and
growth opportunities. To get a good
multiple, it’s crucial to prove that the
Focus on planning
to generate the
highest returns
business hasn’t peaked. It can’t look
like you’ve taken the first steps to a
new market just to make the business
look more appealing for a sale.
In fact, such desperate tactics
won’t get you far at all. The
management team needs to be
honest with themselves and realistic
with potential buyers, communicating
exposures clearly and up front.
People don’t like being hit with
unexpected surprises. Business
fundamentals are what generate
a sustainable profit level — and
that’s what bidders will price off.
The multiple will depend on future
strategy and growth opportunities,
and any competitive tension created
by the bidders can add value on top.
Yet even a well-prepared team
will waste all that effort if they get
the timing wrong. This depends not
just on the health of company itself,
but on macro conditions, too. The
general economic situation will affect
the company’s ability to raise debt,
for example, and industry-specific
factors such as impending regulation
can often lead to uncertainty.
At these times, it’s crucial you
ask questions such as: is the market
saying this is the right time to do it?
If yes, have all exit strategies and
buyers’ needs been identified and
thoroughly explored? What processes
will be used to make it happen? What
support will they need to hit the
timetable and get required sign-offs?
What different structural choices do
you have to effect the disposal? Is
the business currently in the best
condition for such a move?
This may all seem like a lot to
consider — but it’s worth it. Our
research has found that management
teams that put a significant focus
on planning for an exit generate the
highest returns. It’s about gathering
all the data that buyers will require,
giving yourself time to correct things,
and going to market with historical
information and a strong future
business plan that is robust and
will stand up to the scrutiny of
potential bidders.
More information
To learn more about preparing for exit strategies and other aspects of growing
your business, contact Gavin Jordan, a specialist in the financial services industry,
at gjordan@uk.ey.com. Alternatively, contact one of our Transaction Advisory
leaders: Joachim Spill at joachim.spill@de.ey.com (EMEIA) or Rich Jeanneret
at richard.jeanneret@ey.com (Americas).
29
Profile: Fisker Automotive
Henrik Fisker
is out to prove
that a car that is
kind to the planet
doesn’t have to
be slow and dull.
He tells us how
Fisker Automotive
is revving up the
eco-car market
Unguilty
pleasure
words Roshan McArthur_ photography Robert Gallagher
Exceptional July–December 2011
31
Profile: Fisker Automotive
“We’re standing in
front of the biggest
change in the car
industry since we
moved from the horse
to gasoline”
B
lame it on Leonardo DiCaprio bringing a Toyota
Prius to the Oscars, or the fact that Henrik
Fisker can’t imagine a world without cars.
Whatever the reason, the Danish-born designer
has recently taken one of the boldest risks in
the automotive industry: raising a billion dollars to develop
a range of luxury hybrid-electric vehicles.
His first creation, the Karma, a plug-in electric sports
car with a gasoline range-extending engine, hit dealerships
in April. And, like the iconic machines Fisker is famous for
designing — the V8 Vantage, Aston Martin DB9 and BMW Z8
— the Karma has gallons of appeal.
In 2005, when he saw DiCaprio take a green car to the
red carpet, Fisker recognized a sea change. “He wanted to
make a statement,” he says of the actor. “At that point, for
me, it was clear that something had changed. And I felt like
I needed to be part of that.”
The problem, as he saw it, wasn’t the lack of green cars on
the market. It was style — or, rather, the lack of it.
“The perception of environmentally friendly vehicles is
‘I pay more, but I get less. I get a smaller, slower car, with
less design,’” he says. “I love cars, and I love fast cars. I
looked at the landscape of green cars and thought, ‘Can it
be that difficult to make a good-looking, environmentally
friendly car?’”
The other problem was that nobody seemed to be
designing a car for how people actually drive. The average
US driver travels 40 miles a day, occasionally further. As a
result, the plug-in electric car is a great solution, but only in
part. You can only drive so far in them without having to plug
them in again — and what if you forget to plug them in?
In 2005, Fisker and fellow industry veteran Bernhard
Koehler had set up a custom car-making business called
Fisker Coachbuild in Irvine, California. Two years later, they
went one further and launched Fisker Automotive. Their
32
goal was to create a stylish, high-performance car that
could go 50 miles without using any gasoline, but much
further if required.
Good karma
That car, the Karma, is a four-door sports car that can
travel 50 miles on electric power and another 250 miles on
low-emission hybrid electric power. It has a solar-paneled
roof, sustainable interiors and bodywork that would make
a teenage boy weep. At a price tag of US$95,900, it has
already been pre-ordered by 3,000 customers, including
General Colin Powell and Pixar’s John Lasseter. And Fisker
plans to sell 15,000 of them each year.
Between them, Fisker and Koehler have had extensive
experience in the automotive world. Respectively, they
had been Design Director and Business Director at Aston
Martin, Ford’s Ingeni design studio
Danish-born Henrik
and BMW’s Designworks USA. But
Fisker (left) brings
neither had created a business
the Scandinavian
knack for design to
from scratch.
Fisker Automotive’s
Fisker admits that it has been
cars, including the
Karma (above)
harder than he’d expected.
Exceptional July–December 2011
33
Profile: Fisker Automotive
Viewpoint
The cleantech
revolution
Jay Spencer, Americas Cleantech Leader, Ernst & Young
“I looked at the landscape
of green cars and thought,
‘Can it be that difficult
to make a good-looking,
environmentally friendly car?’”
“You’ve got these two huge tasks — building the company
and finding financing — and you have to do that on top of
creating a brand new car and brand new technology.”
However, it’s a challenge that he’s enjoyed. “I felt like
I’d reached the peak of what I could do in the corporate
world, and I’m not really the type who can sit back and
put it in cruise control,” he says. “I like to do things that
people think are impossible.”
In order to keep costs down and expand its range, the
company is designing three vehicles based on each platform.
As a result, there will be three Karmas: the four-door,
a convertible and another style to be revealed later this
year. These will be followed, in early 2013, by three more
vehicles, currently being developed as Project Nina, which
will be more mass-market, competing with the Audi A4 and
the Mercedes E class. Up to 100,000 will be produced each
year and sold for about US$50,000.
Comparisons to the grand designs of John DeLorean — the
visionary engineer whose foray into entrepreneurship ended
in failure — are, it seems, inevitable. “When we went out to
raise money,” Fisker recalls, “people asked us, ‘What about
DeLorean? If he couldn’t make it, how are you different?’ So
34
we met with the original CFO of DeLorean
to really understand what happened.
“The biggest difference is that all
the money we have raised has gone
into the development of the vehicle,
whereas DeLorean used the vast
majority of his to build a factory. Then
he ran out of money.”
Fisker, on the other hand, saved
on initial costs by outsourcing the
manufacturing of the Karma to Valmet in Finland, using
parts that were also outsourced. “We created a new business
model, in terms of development and overheads, that meant
we could survive on very low volumes,” he says. “So each
project is profitable at much less than 50% of the volume.
That gives us a huge cushion.”
Kinetic energy
Two events also conspired to accelerate the Fisker business
plan. One was acquiring the Boxwood Plant in Delaware for
US$20m, supported by a grant from that state for US$21m.
The other was an advanced technology loan from the US
Department of Energy for US$528m. “We have to pay it
back,” stresses Fisker, “but it’s a lot of money to put into
a company where you don’t have to give out equity, so it
enticed other investors to put another half a billion in.”
One of the requirements of the federal loan is that the
money is spent in the US, so the Karma is being produced
overseas using private equity funds, and Project Nina will be
built in Delaware.
“The Department of Energy is interested in us getting
our more affordable vehicle on the road,” he explains, “but
we needed the more expensive one first to
pave the way, because the technology is
expensive. Without the loan, we wouldn’t
have been able to get the lower-cost car on
the market. We would have to stay a much
lower-volume car maker for a much longer
period of time.”
This jump-start couldn’t have come at a
better time. “We’re standing in front of the
biggest change in the car industry since we
moved from the horse to gasoline,” says
Fisker. “The President has said he would
like to see one million electrified cars on the
road by 2015 and, I think, with the proper
incentives, we might be able to get there.”
He believes that, in years to come, electric
vehicles with range extenders will have the
largest market share. However, with only
two players currently in this field (GM’s Volt
and the Karma), it will take at least three or
four years for the market to start growing.
And when it does, if Fisker has his way,
the cars of the future will not only be
environmentally friendly, they will also be
works of art.
“I think that my strength, versus other
CEOs in the car business, is that I look at a
car as an object of desire,” he says. “And, as
a company, we want to see if we can move
the car industry along in a positive way.
We’re saying there is a future for the car, and
it’s an exciting future. It’s guilt-free luxury.”
No product embodies the
transformational impact of cleantech
better than the electric vehicle (EV).
New EV parts, supply chains, financing
structures and business models will
pave the way to a radically different
auto industry by 2020. Widespread EV
use also has profound implications for
the utility, infrastructure and energy
sectors, and new services they will
spark, such as energy management.
During the financial downturn,
businesses looked to cleantech
for cost savings and efficiency
improvements. But with efficiency
now a competitive given, the
corporate focus on cleantech is
shifting toward top-line growth
through new products and markets.
Corporations are pursuing
transformative opportunities in several
ways. One is to incorporate cleantech
into existing products to improve
environmental performance. Another
is to enter cleantech segments
adjacent to existing businesses: the
semiconductor company that begins
making solar cells, or a generation
company that moves into wind.
While these involve melding
cleantech with existing competencies,
the degree of innovation can be
even greater. Companies are using
their brand power to move into new
cleantech markets and participate in
a fast-evolving cleantech ecosystem.
The emerging business models related
to the new ecosystem of EVs, for
example, involve not only carmakers,
utilities, battery manufacturers
and smart grid companies, but also
consumer products, retailers and
communication corporations.
The cleantech agenda can also be
seen clearly in corporate partnering
strategies related to emerging
cleantech companies. The desire
to expand revenue through brand
enhancement, innovation, reaching
new customers and entering new
markets is driving partnerships with
emerging cleantech companies.
For emerging cleantech companies
pursuing such partnerships, it is
critical to understand a corporation’s
transformation agenda and
demonstrate an ability to advance it.
Whether you have built an
emerging cleantech company or run
a corporation looking to pursue new
cleantech opportunities, you should
consider several things when creating
a meaningful cleantech agenda:
• Ask how you can create value from
the transformation to a resourceefficient, low carbon economy
• Determine how cleantech ties into
your overall growth strategy
• Contemplate collaborative and crosssector partnerships designed to
build creative, long-lasting solutions.
Unconventional pacts can help fill
gaps and meet new market needs
• Consider your energy mix. How
much energy is produced today
through fossil fuels or renewable
energy? Where do you want to be
by 2015? By 2020?
• Determine how cleantech can enable
your sustainability strategy
More information
To learn more about how we can help you navigate the complexities of the rapidly
evolving cleantech space, contact Jay Spencer at jay.spencer@ey.com (Americas),
Robert Seiter at robert.seiter@de.ey.com (EMEIA) or Gil Forer, Global Cleantech
Center, at gil.forer@ey.com. To request a copy of the Ernst & Young Cleantech
Ignition session report, The electrification of vehicles, please email Jennifer Held
at jennifer.held@de.ey.com
Exceptional July–December 2011
35
Analysis: Franchises
Chain reaction
Franchising provides stability and
a tried-and-tested business model.
But is it the best option for those
with an entrepreneurial streak?
We debate the pros and cons, and
get the opinion of franchising
specialist Mohammed Alshaya
once you’re up and running, opportunities
to demonstrate that entrepreneurial flair are
more limited.
For the average “bigger brand” franchise
arrangement, the business model will
have been set long ago. Take Costa Coffee,
a leading UK franchisor now expanding
across Europe and the Middle East. Virtually
everything, from the size of the cups to
words Christian Doherty_ photography Courtesy of M. H. Alshaya Co. W.L.L.
the music playing in the background, is
determined by the franchisor. It makes sense,
s far as anomalies go, it is a remarkable one.
given that a huge part of the appeal of chains like Costa is
Despite three years of economic stagnation,
familiarity: customers like the fact that the coffee they order
with rising unemployment and a freeze in
in London will be the same as what they get in Jerusalem.
the banking system leading to a huge rise in
business failures, the number of franchises being opened has
Strict brand guidelines
continued to grow. Around the world, franchising remains
A franchisee in that setup will have little chance to put their
one of the most popular ways for growing brands to continue
own stamp on the business, beyond buying cheaper cleaning
expansion. More brands are rolling out franchise networks in
products (and even then, many franchisors will have an
emerging markets: the Middle East, Latin America and China
approved list of products from which to choose). But for
in particular have all seen significant growth.
many franchisees, that forms part of the attraction.
But what accounts for this growth? In the view of Matthew
It can cost up to US$500,000 to buy a franchise and
Haller of the International Franchise Association, it is the
applicants are often required to purchase several sites and
security that franchising offers during economic times. “It
prove their ability to raise further funding. Given that level of
is appealing to so many people because it allows them to
investment, instant returns will be required, so it makes little
go into business for themselves, but not by themselves,” he
sense to change what has been proven to work. The equation
says. “You have the support in terms of brand recognition
is simple: take our model, work hard, don’t deviate from the
that you wouldn’t have going the start-up route, and a
plan and the profits should follow.
network of other franchisees in your system from whom you
However, some franchisees do seek more freedom. For
can learn what works and what doesn’t.”
them, newer franchise networks may be the answer: after all,
But just how much freedom does franchising offer? And
a newer network is more likely to allow the franchisee some
how entrepreneurial can franchising be?
influence on the franchisor. “It might be that you’re one of
Consider what McDonald’s, one of the world’s leading
the first franchisees for a new business,” says Tom Endean
franchisors, demands from its potential franchisees: high
of the British Franchise Association. “As the network is
personal integrity; high standards of people management;
developing, you might be providing feedback from the front
financial acumen; strong leadership qualities; and the
line on how it’s all going. It then becomes a two-way street,
personality to be an excellent ambassador for the brand.
so you might see an opportunity and feed that back to the
These skills, together with the vision, drive and ambition
franchisor, who can then develop it and perhaps roll it out —
traditionally associated with entrepreneurs, are needed to
and it’s your influence that created that.”
set up a new venture, whether it’s a franchise or a standThese examples — Costa and a new franchise network —
alone start-up. The difference in a franchise, however, is that,
represent two ends of the spectrum. For most franchisees,
Franchising by numbers
the attraction of buying a franchise is the “halfway
house” nature of the arrangement. They can satisfy their
entrepreneurial urge within the safety net of a proven
business model — all the more appealing given the state of
the economy. And they also know that if they work hard and
stay the course, the rewards of franchising far outstrip those
on offer to an average salaried manager.
In the end, it seems some entrepreneurial skills can and do
play a part in franchising, but the degree to which that flair
and input can continue after setting up is limited.
However, for those who want to run a business, but who
don’t want all the risks that go along with starting one
themselves, franchising has attractions all of its own.
Major brands in the UK offering
franchising opportunities
13,000
Number of Europcar franchises
around the world
Minimum liquid assets required
for a prospective Dunkin’ Donuts
franchisee
27
%
Projected annual growth
of franchises opening in the
Middle East region
“Entrepreneurialism is
essential to a franchise”
A
36
850
$250,000
Mohammed Alshaya, CEO
of franchising specialist Alshaya
Founded in 1890, Alshaya is a family business
conglomerate based in Kuwait. It operates in many
sectors, but is a big player in the global franchise space,
working with such brands as the Body Shop and H&M.
Mohammed Alshaya, its CEO, gives his take on whether
franchising can be entrepreneurial.
“I believe the spirit of entrepreneurialism and
innovation is an essential part of every successful
franchisee. This is particularly true when you are looking
at introducing a new brand into a market.
“When considering whether a brand can move beyond
the realms of its domestic base – from local to global –
the nature of the franchisee is a critical factor. They need
to have the ability to project that brand into the future
and envisage its transformation into other markets. They
also need to be able to understand if it will translate well
and they need to have a network that grants access to
information and business contacts that can provide local
market insight. Ultimately, it is about taking a measured
risk based on all of these factors.
“I also believe that a franchisee launching a brand in
a new market must have a feel for the trends in their
sector. This is information that can be gleaned on the
ground, online or through other sources – but it relies
on the owner having a hunger for information and ideas
– which, to me, is what makes an entrepreneur.
“An entrepreneur would absolutely make a good
franchisee, and vice versa. As with the franchisor, the
franchisee needs to have a very clear vision about what
they want to do with a brand, where they want to take
it and how they will drive its growth. They also need to
be able to ensure delivery on the ground, shape a supply
chain, attract and retain a great team of people.”
Van Wijhe Verf
Profile: Van Wijhe Verf
M
arlies van Wijhe may be the fourth generation of Van
Wijhes to run the family business, but there’s nothing
old‑fashioned about the Dutch paint manufacturer’s
approach to growth. “Innovation has been the key to
Van Wijhe’s success and independence throughout the company’s history,”
says Van Wijhe, who took over as CEO from her father in 2000. “We can’t
compete with the multinationals in terms of size or volume, but we can
absolutely compete with them in terms of innovation.”
Van Wijhe Verf BV produces decorative and professional paints that
are distributed both within the Netherlands and internationally through a
network of Van Wijhe-owned and independent wholesalers. Although the
company’s roots date back to 1916, when Van Wijhe’s great-grandfather
established a wholesale business, it wasn’t until after World War II that it
began to focus on paint alone. Around this time, her grandfather invented
the “one-can system” for applying both layers of paint at
once, which marked the beginning of the well-known Dutch
brand Wijzonol.
In the 1960s, the company moved out of Zwolle city
center to an industrial estate on the outskirts of town,
but things really started to heat up in the late 1970s and
1980s. Among other acquisitions, Van Wijhe took over the
Ralston brand from US company Sherwin Williams in 1978.
With its more universally pronounceable name, this became
Van Wijhe’s main export brand and is now exported to 25
countries in Europe, North America and Asia.
In living
color
“We can’t compete
with the multinationals
in terms of size or
volume, but we can
absolutely compete
with them in terms
of innovation”
38
Marlies van Wijhe
took over from her
father as CEO of the
family business in
2000. She tells us
how independent
paint manufacturer
Van Wijhe Verf has
stayed competitive in
a sector of giants
words Gary Rudland_ photography Chris de Bode/Panos Pictures
The simpler, the better
During this decade, Van Wijhe’s father also developed an
innovative two-base paint tinting system. “At the time,
most of our competitors were using up to an 11-base
tinting system,” she explains. “For obvious reasons, our
simpler system became very popular and we have enjoyed
considerable success exporting it around the world,
particularly to the Asian market. The ability to choose our
own direction like this is one of the main advantages of
being an independent family business.”
Today, Van Wijhe Verf BV is the Netherlands’ largest
independent coatings company, employing 220 people and
with an annual turnover of about €45m (US$62m).
Having previously worked for Dutch scientific company
DSM, Van Wijhe joined the family business in 1994, as
head of the export department. “When my father had two
daughters, he thought it would be the end of the family
connection, but I was determined to become the fourth
generation of Van Wijhes to take the helm,” she says.
After she took over as CEO in 2000, her father advised
her to build her own management team with people whose
strengths complemented her own. “At first I had trouble
delegating, but I now have a team around me in which
I have complete confidence.”
Exceptional July–December 2011
39
Profile: Van Wijhe Verf
Viewpoint
Estate planning
and family charters
Marnix van Rij, Head of EMEIA Personal Tax Services, Ernst & Young
Marlies van Wijhe
(left) won the 2010
Prix Veuve Cliquot for
the Netherlands. She
considers it her biggest
achievement as CEO
Now in competition with giants such as AkzoNobel
and PPG, and operating in a sector that is no stranger to
mergers and acquisitions, Van Wijhe Verf BV stands alone
as an independent family business. The current CEO has
no plans to change that.
“As long as we can ensure the company’s survival
and success, and it remains enjoyable, I see no reason
why Van Wijhe shouldn’t remain a family business for
the foreseeable future,” she says. “The company’s
independence is very important to us. We have plenty
of freedom to operate and develop in our own way, and
perhaps the biggest challenge is maintaining our history
of innovation. It’s the old cliché that you have to move
forward to stand still.”
While there has been plenty of interest from competitors
over the years, which Van Wijhe sees as a good sign, the
company has taken precautions to safeguard its independent
status and all shares are held by three family members:
Marlies; her father, Dick; and Marlies’ sister, Marijke.
“We probably can’t compete with the multinationals in
terms of buying power and economies of scale, although I don’t know what
prices they pay for raw materials,” says Van Wijhe. “I do know that we still
manage to make a decent profit without being a multinational, however, so
perhaps we’re doing some things even better than they are.”
“My biggest wish is that I will
one day be able to pass on the
company to a fifth generation
of the Van Wijhe family”
Van Wijhe is also proud to be the first woman to run
the company. Research backs up her belief that family
businesses are one of the best ways for women to achieve
higher positions: even though the paint manufacturing
industry is almost wholly male, she experienced very little
resistance to her appointment.
“Quite the opposite, in fact,” she says. “Most employees
were more concerned that Van Wijhe should remain a
family business.” There were, however, a few people on the
management board who found it difficult to accept her as
their boss — both men and women. Van Wijhe says that one
female candidate actually withdrew from the recruitment
process when she heard she would be working for another
woman. “I learned a lot from those experiences,” she says.
40
Award winner
Van Wijhe considers winning the 2010 Prix Veuve Clicquot for the
Netherlands, a prestigious award recognizing exceptional businesswomen,
as her biggest achievement since becoming CEO. But the prize hasn’t
just benefited her personally. “Some of our customers and employees
seem just as pleased with the award as I am,” she says. “Our customers in
Holland are proud to be associated with it and our competitors are happy
to see the spotlight on the paint industry for once. International customers
see it as confirmation that they’re dealing with a respected and forward-
thinking company, while our staff sees it as
recognition of their hard work.”
Her aim over the coming years is for
Van Wijhe to continue to grow and become
even stronger than it is now.
“It’s ironic, but the continuing
improvement of paint products, in terms
of durability, for example, means that
the domestic market is shrinking, since
repainting has to be done less often,”
she says. The company aims to address
this by expanding into other areas, such
as polyester gel coats for yachts and
swimming pools. The export of its twobase tinting system, meanwhile, is helping
to maintain stability.
New trends also continue to emerge,
from antibacterial coatings to bio-based
coatings that incorporate algae.
“Five years ago, innovation was hot,
but now it’s all about sustainability,” says
Van Wijhe. “In my opinion, you shouldn’t
separate the two. Sustainable innovation is
the key to Van Wijhe’s past and future, and
sometimes we’ve been too far ahead of the
times in this respect.
“The challenge for the coming years is
to make paint products more sustainable,
while maintaining at least the same
properties as they possess today.
“But my biggest wish for the company is
that I will one day be able to pass it on to
a fifth generation of the Van Wijhe family.
That would be a dream come true.”
Estate planning can be a complex
subject in which many factors need
to be considered. The most important
part of estate planning is to get the
analysis of circumstances right.
Establishing the correct fact pattern
is essential to this analysis.
For example, matrimonial status is
very important. Numerous forms of
partnership exist, some contractual
and others not, and people of
different nationalities can marry
in one country and end up living in
another. The estate planning analysis
ascertains which country’s laws are
applicable in different circumstances.
Within the field of estate law, do
both parties have wills, and which
takes precedence? If a family has a
second home abroad, under which
jurisdiction does it fall? Estate tax
planning, meanwhile, involves first
analyzing which country has tax
jurisdiction and then ascertaining
which estate tax laws apply to a
party’s personal circumstances.
A third area of importance in
estate planning applies to the
owners of a business. This involves
determining whether any exemptions
under law are applicable, such as
(partial) tax exemptions, which
make it easier to transfer the
business to the next generation.
These can vary greatly from one
country to another.
Crucially, estate planning
should never be neglected,
since circumstances can change
considerably over a period of just
five years.
Family charters are also important
to family businesses. No two family
charters are alike, but the three areas
that all should cover are capital,
management and shareholders.
Family charters usually start with
a mission statement, covering issues
such as whether the business should
stay within the family, provided there
are sufficient heirs. Other topics may
include shareholder remunerations
and voting rights, and the transfer
of shares from one generation to
the next.
In the Netherlands, many family
businesses set up a family foundation
as a vehicle that operates between
the family and the business, but
arrangements can vary considerably
from country to country and from
culture to culture. In Anglo-Saxon
cultures, for example, it is normal for
a successful business to be floated
on the stock exchange, but many
family charters elsewhere expressly
forbid an IPO.
In some countries, a family charter
is a legally binding document, while in
others it may only be morally binding.
In either case, it is vitally important
to phrase the mission statement
and principles correctly and
unambiguously, in order to create a
sustainable family charter for current
and future generations.
More information
To learn more about Ernst & Young’s tax planning services for family businesses,
please contact Marnix van Rij at marnix.van.rij@nl.ey.com (EMEIA) or Jeff
Brodsky at jeff.brodsky@ey.com (Americas). Ernst & Young has recently
launched a Family Business Center of Excellence and will shortly be publishing
a book, Succeeding for generations: stories of the world’s most enduring family
businesses. To learn more, please visit ey.com/familybusiness or contact Penny
Cooper at pcooper2@uk.ey.com to request a copy of the book.
Exceptional July–December 2011
41
Profile: Fry Group Foods
Ethical
edibles
Wally and Debbie Fry are on
a mission to save the planet,
one veggie burger at a time
words Glynis Horning_ photography Warren van Rensburg
T
he essence of Wally and Debbie
Fry’s family business is apparent
within minutes of arriving at their
factory in the hills of Westmead
outside Durban on South Africa’s east
coast. A young woman is rushing out with
a toddler in tow, but stops at the entrance
to the warm bare brick building: “Look,
Isabella,” she says, dropping to one knee,
“a praying mantis — isn’t he beautiful!”
“That would be our daughter, Hayley,
dropping off her two-year-old between
meetings,” says Debbie Fry in the
understated offices where she and Wally
oversee Fry’s Vegetarian, winner of such
awards as 2009 UK Vegetarian Product of
the Year and the Ethical Consumer Most
Ethical Vegetarian Food Producer of the
Year — for three years running.
A love for family, the earth and all that
inhabits it is what led these youthfullooking 50-somethings to start the business
in their kitchen 21 years ago. Debbie
has been vegetarian from childhood. “It
bothered me that we’d fuss over our family
42
Exceptional July–December 2011
pets yet eat other animals,” she says. Wally
was moved to join her when their three
young daughters raised similar questions.
“Tammy would say ‘Daddy, what’s a
drumstick?’, which got me thinking about
it being the leg of a chicken. Meat today
is so divorced from its origins, and factory
farming is so far from natural, that it’s easy
to lose sight of the animals involved.”
Previously, Wally was a builder running
a construction company with help from
Debbie. One of his projects was a piggery.
“Seeing it in operation later was a final
push to vegetarianism,” he says. “But,
like lots of people, I missed the taste and
texture of meat. I needed something to
replace it as the focus of meals — something
nutritious and easy to prepare.”
The bigger picture
A personal quest became a consuming
passion as Wally started uncovering
the wider effects of the meat industry.
“Livestock farming is the most significant
contributor to rainforest destruction,
soil erosion, depletion of fresh water
reserves and greenhouse gas emissions,”
he says bluntly.
In 1989, when he and Debbie had been
contemplating early retirement, they began
experimenting with soy, wheat and other
vegetable proteins on their two-plate stove.
“There was nothing out there to help,”
Debbie recalls. “We had to come up with
everything ourselves, even vegetarian
sausage skin. But Wally’s a perfectionist;
he doesn’t give up!” Within a year, they
had four products, a friend had drawn up a
marketing plan and orders were coming in.
The couple launched Fry Group Foods
in 1991 and, when the lease expired on
“There was nothing
out there to help. We
had to come up with
everything ourselves,
even a vegetarian
sausage skin”
Profile: Fry Group Foods
22
23
Viewpoint
It now produces
In the beginning,
Fry’s produced
20kg
This page: The Fry’s
Vegetarian factory has
a low carbon footprint,
in line with its planetcentric vision
of product a day
tons
a shift and exports to more than
“We all have the same
vision motivating us
and we have different
strengths that balance
one another”
44
countries
one of the five small factories they
owned, they moved in. Wally fitted it
out with second-hand food production
machinery he adapted. “We couldn’t afford
not to maximize use of the facilities, so we
switched quickly into 24-hour production,”
says Debbie. “It was exhilarating but pretty
exhausting, as the two of us did virtually
everything ourselves, from mixing and
weighing to loading the transport van.”
Wally also ran a karate school in the
evenings (he and daughter Tammy are
fifth dans, and Debbie and Hayley are third
dans). “I’d teach karate from 6.00 p.m.
to 9.00 p.m., then finish up back at the
factory,” he says. “If machinery broke down
at midnight, I’d be there again.”
Within a year, the Frys were supplying the
Pick n Pay, Checkers and Spar supermarket
chains across South Africa, and within
seven they were exporting to Mauritius and
Australia, and had converted from a close
corporation (CC) to a private company.
Bigger digs
By 2005, Fry Group had outgrown all
five of its factories and moved to its
present custom-built, eco-friendly factory.
Innovative roof design obviates a need for
air conditioning, lights switch off when not
in use and water is recycled. As far as the
meat-substitute products the company now
produces — from veggie burgers to chicken-
style nuggets — these use only ethically
farmed, non-GM produce, and are certified
vegan, kosher and halaal. In the past six
years, Fry Group has doubled its output.
All this has been achieved with no
third-party debt and solely through trading
profit. Debbie credits much of their success
to Fry Group’s status as a family business.
“We all have the same vision motivating
us, we share the same ethical and work
values, and we have different strengths
that balance one another,” she says.
Daughter Hayley heads R&D, Hayley’s
husband Shaun Richardson is export
manager, daughter Tammy is marketing
director and Tammy’s husband, Richard
Kelly, is systems and safety coordinator.
A third Fry daughter is still at university.
Leaving work at work
“We’re all so passionate about what we do
that the only downside is that we battle to
stop talking shop,” says Wally. “I’ve had
to make rules to stop that on weekends!”
From producing 20kg a day, Fry’s
Vegetarian today turns out 22 tons a shift
and exports to more than 23 countries,
including the UK, the US, Sweden
and India. To expand further, they are
currently looking at forging international
partnerships, and hope to reduce their
carbon footprint by one day constructing
production facilities abroad.
“Our goal of reducing the world’s meat
consumption is more pressing than ever,
and public thinking is catching up with us
through global warming and the Green
movement,” Wally says. “We don’t just want
to sustain growth, we want to accelerate it.”
They plan to do that through continuous
product development and marketing
initiatives such as the Meat Free Mondays
campaign they launched in South Africa
last September. “We’d love to carry that
forward,” says Debbie. “Just think — if the
whole United States adopted the initiative,
the reduction in carbon emissions would
equal taking almost 20 million cars off the
road for a year!”
That should make a lot of praying
mantises happy.
Tax implications of
expanding abroad
Justin Liebenberg, Director of International Tax Services,
Ernst & Young
Anyone contemplating expansion
into a new country needs to acquire a
sound understanding, not only of its
markets and business practices, but
also of its tax rules. Are you required
to register for taxation there? When
do payments need to be made? And
what tax returns do you need to
complete — income tax, VAT?
Tax considerations will be shaped
largely by the form your expansion
takes. Will you be opening a branch
of your current operation? Or will
you be creating an entirely new
entity, run as a separate company?
Or will you enter into partnership
with an independent party based
in the new country to act as your
distributor? Operating as a branch or
as a separate company will give you
greater control than a partnership,
but a partnership can bring the
benefits of intimate knowledge of
local conditions and a network of
useful relationships.
If you opt to form a separate
company, any transactions between
this and your other company
must be kept at arm’s length. Tax
administrators watch carefully for
signs of price manipulation, such as
attempting to pay fewer taxes in a
high-tax jurisdiction, and vice versa.
Expansion abroad requires a
grasp of the effects of double tax
agreements — the agreements
between countries that regulate the
taxing rights of the countries. So, for
example, if you create a new company
abroad and want to pay fees to the
parent company back home, the
treaty may stipulate which country
taxes you, and at what rate. You also
need to be aware of possible exchange
controls — companies in South
Africa and many African countries,
especially, need permission from the
central bank to use those countries’
funds to invest in foreign subsidiaries.
Staff taxation is another issue to
be dealt with. If you will be sending
people from your home country to
work in a foreign country, you need
to establish how they will be taxed.
What obligation would you have in
deducting tax on what you pay them?
And should you deduct it in the new
country, or back home?
Domestic tax rules vary — in South
Africa, for instance, if you work
outside the country for more than
183 days a year, you are not subject
to tax in South Africa. Double tax
agreements also apply to individuals,
and you need to establish whether
employees would be taxed by their
home country or the new country.
Finally, it’s important to ascertain
the situation in the new country
with regard to VAT and customs,
especially if you will be importing
materials or goods.
In a nutshell, when you expand
abroad, taxation is a combination of
local domestic tax law, the tax law of
the country to which you are moving,
and international law that applies to
the relations between the two. It can
be a complicated business, and calls
for sensible professional advice.
More information
To discuss your international tax needs relating to Africa, please email Justin
Liebenberg at justin.liebenberg@za.ey.com. For outside of Africa, please contact
Alex Postma at alex.postma@uk.ey.com. To request a copy of Ernst & Young’s
2011 Worldwide Corporate Tax Guide, email Victoria Howell-Richardson at
victoria.howell-richardson@uk.ey.com
Exceptional July–December 2011
45
Analysis: EOY Forum
Leading
the
charge
“How do we take advantage of
diversity?” he asked. “Local logic is
what we call culture. Values are what
we call things that are not yet norms.
The paradigms to deal with diversity
are lost: our paradigms are not good
enough to deal with multicultural
teams anymore.
words Damian Reilly
“Five years ago, leadership books
were all about courage, now they are
early 100 entrepreneurs in one room
all about caution. It is self-contradictory. The entrepreneurial
create a highly charged atmosphere. This
leader has the propensity and competency to help
was the backdrop for the Ernst & Young
an organization and its teams reconcile dilemmas for
EMEIA Entrepreneur Of The Year Forum,
sustainable innovation.”
held in Dubai over three days in April.
As Abdulaziz Al-Sowailim, Ernst & Young’s Middle East and
Doing business in the Middle East
North Africa Chairman, put it in his opening remarks: “The
Several speakers urged those listening to fully recognize the
young people of the MENA region are asking for change,
importance of properly understanding a market in which
for opportunity. Entrepreneurs can play a key part in this.
they hoped to succeed. This skill, vital to any entrepreneur,
If you can create win-win opportunities here, you will be
was seen as key to differentiating your approach in the Gulf
guaranteed big business.”
countries, where too many businesspeople think they can
The audience comprised finalists and winners of the
drop in from time to time and make a quick profit.
Entrepreneur Of The Year award from Europe, the Middle
Allan Biggar, CEO of All About Brands, told delegates:
East, India and Africa. The speakers had been chosen for
“You have to be here. Flying in and out to sell things will get
their takes on new horizons — both literal and personal — and
you so far. But living here is vital. People respect it.”
inspirational ways to turn conventional wisdom on its head.
Local media personality Muna AbuSulayman said that
Fons Trompenaars was the first headline speaker,
Arabic language skills would become ever more valued.
bounding on to the stage to deliver a talk that was as
She concluded a speech that cleverly pointed out to
humorous as it was edifying. Trompenaars, an acclaimed
listening entrepreneurs the importance of understanding
author and confidante to various Fortune 500 leaders, took
cultural oddities (in the West, Miranda is the heroine of
as his theme the modern clash of cultures and the problem
Shakespeare’s The Tempest; in the Middle East, it is an
of outdated thinking. He implored those listening to find
orange-flavored soda) by saying: “If you can’t read the
opportunity where others might see none.
signs, you are not going to get to your destination.”
The annual EMEIA Entrepreneur Of The
Year Forum saw the cream of the business
world trade ideas and inspiration
N
46
Exceptional July–December 2011
Author Fons
Trompenaars (left) and
Ian Gorsuch, Regional
Director of McLaren F1
(below), were two of the
high-profile speakers at
the Forum
The session on private
equity held the unwavering
attention of the entrepreneurs.
Jörn Nikolay, General Atlantic
Vice President, and Firas Nasir,
Middle East Managing Director
of the Carlyle Group, took
questions about the rewards
and pitfalls of funding start-ups
with considerable honesty.
“The chemistry is
everything,” Nikolay said.
“We maybe spend more
time wining and dining
with entrepreneurs than we do looking at their books in
this region.” He added that success could sometimes be
problematic. “Friction with entrepreneurs occurs sometimes
when business scales over a certain size. You need to
become a manager and not an entrepreneur.”
Innovation and leadership
“Innovation is not invention, it is doing something clever
with invention,” leadership expert Emmanuel Gobillot
reminded delegates, before emphasizing the importance
of leading inspirationally. “How can you get someone to
do something you haven’t paid them to do? Can you
create a climate as a leader to maximize people’s
discretionary effort?”
Delegates were also invited to listen to the stories of
those who had succeeded. Middle East retail magnate
Mohammed Alshaya (see case study, page 37) talked
not only of the decisions he had made over his career, but
of the imperative Gulf leaders faced to create 50 million
private sector jobs by 2020. “You need only look around
the Middle East today to see the result of economic
unhappiness,” he said.
Ian Gorsuch, Regional Director of legendary F1 racing
team McLaren, gave a fascinating talk on the benefits
of breaking conventions and going back to the drawing
board. “Just because something has been done a certain
way for decades does not mean it is the right or only way
to do it,” he said.
It was a testament to the speakers’ skill that the energy
levels on the third day of the conference were as high as
they had been during the first two days. It saw Headshift
CEO Lee Bryant outlining the importance of embracing
new technology that will drive user participation in
social networks — whether that is your employees or
your customers. Abraaj Capital CEO Arif Naqvi told the
conference: “Entrepreneurship is about getting things right
by being obsessive about the desire to succeed. Accepting
failure is a desire to get up and start again.”
Delegates also enjoyed a keynote from acclaimed criminal
profiler Dr. Thomas Müller (see page 18). He talked about
the DNA of the entrepreneur — their ability to take risks,
accept and move on from failure. He also outlined a plan for
dealing with crisis situations.
Heyrick Bond Gunning, the man who set up DHL in Iraq,
started his presentation with the statement that “no plan
survives first contact with the enemy.”
He went on: “The key to success in Iraq was having a clear
mission in sight and constantly reviewing and working out
how to achieve what we set out to. Clear leadership was
essential, but keeping everyone’s spirits up with humor was
also important.”
The final speaker of the day, inspirational blind adventurer
Miles Hilton-Barber, was the highlight for many. His bravery
and will to achieve the impossible left its mark on the
audience, with many taking away his advice that your
attitude determines your altitude.
If the thunderous applause that each of the speakers
received was a gauge of success — and it was — the 2011
Forum was a triumph. Delegates left smiling with fistfuls of
business cards and new contacts made.
More information
Further details of the Forum can be found
at eoy-forum.com. For more information
on your local Entrepreneur Of The Year
program, please visit ey.com/eoy
47
Profile: Nordic Choice Hotels
One of Norway’s most recognizable figures,
Petter Stordalen has built a hospitality
empire from just two hotels. He tells us
why this success is all down to the people
P
Northern
light
48
Exceptional July–December 2011
words Christina Skreiberg_ photography Richard Hauglin
etter Stordalen doesn’t do things by
halves. “You’ve got to have big goals,”
he says. “As visible and high as the
Norwegian mountains!”
Stordalen is the owner of Nordic
Choice Hotels, the biggest hotel chain in
Scandinavia. In Norway, his home country,
they call him “the king of hotels.” The man
himself acknowledges this modestly, but the original
two hotels that he bought in 1996 have grown to
170 in five countries; his estimated personal wealth
is now NOK 8.5b (US$1.6b). Since 1998, the
company, whose brands include Comfort Hotels,
Quality Hotels, Quality Resort, Clarion Hotels and
Clarion Collection, has tripled its turnover.
“When I started out, I knew almost nothing about
running hotels,” Stordalen laughs. “I’m still not the
expert. But I know how to motivate people and hire
those who know the things that I don’t.”
Stordalen doesn’t blend in, either. He is known for
his flamboyance, enthusiasm, outspokenness and
enormous amounts of energy. For him, relaxation
means a daily run with his dog, Qross. He also likes
to throw a good party; when he got married, he flew
250 people to Marrakech for a huge bash.
“I like to do things well and thoroughly,” he says.
“If you’re going to achieve something, you need to
put all your energy and enthusiasm into it.” This
applies to everything he does, from how he leads his
life and approaches his marriage to the way he raises
his children and runs his business.
Stordalen’s entrepreneurial skills were apparent at
an early age. At age 12, he sold strawberries in his
hometown, Porsgrunn, on Norway’s southeastern
coast. He sold big batches at a reduced price, which
made people buy more. As a result, he was named
Norway’s best strawberry seller. Today, his company
has its own “strawberry philosophy.” “My father
taught me this: you’ve got to work with what you’ve
got,” he says. “So many people make excuses — ‘If
only I had this; if only I had that.’ I don’t want to hear
that. You have to sell the strawberries you’ve got.”
We meet Stordalen at Clarion Collection
Gabelshus, a small and exclusive hotel situated in the
elegant Frogner district on Oslo’s west side. He has
already had a look around to see whether the flowers
are fresh and the pillows fluffed nicely in their chairs.
This attention to detail is one reason for Nordic
Choice Hotels’ exponential growth. From 1997 until
2000, it opened a new hotel every two weeks and
added 50 new employees every 10 days. Today, the
company employs more than 9,000 people.
People power
Stordalen believes, however, that it’s not the
structure or décor that makes a hotel successful,
but the people. “Of course it should look nice and
tasteful, but it is the art of making people feel
welcome and at home that matters,” he says. “I have
no interest in staying at the fanciest hotels in the
world if the people who work there don’t make me
feel welcome. It is all about the personal touch.
“Our attitude is never to settle,” he continues.
“Don’t think you’re the best if you can get even
better. We keep on our toes. We always make
improvements. If you don’t invest, and improve the
hotels you already have, success won’t last.”
Every year, he brings 2,000 of his employees in
the Nordic region together at what he calls the
Winter Conference. “It is my favorite time of year,”
he says. Over three days, his employees mingle,
attend dinners and listen to speakers such as
rock-star activist Bob Geldof, athlete and politician
Sebastian Coe and economist Kjell Nordström. The
conference ends with an awards show celebrating
the best hotels and employees. “During the
49
Profile: Nordic Choice Hotels
Viewpoint
Right: Petter Stordalen
brings 2,000 employees
together every year for
the Winter Conference
“I have no interest in
staying at the fanciest
hotels in the world if
the people who work
there don’t make me
feel welcome”
The two hotels that Stordalen
bought in 1996 have grown to
Tina Frydensberg, Human Capital Leader, Ernst & Young Denmark
170
across five countries
50
Motivating staff
in a downturn
crisis, we’ve had better attitudes and
loyalty than ever before,” says Stordalen.
“For us, this unity is in our work culture.
Everyone is proud to be a part of it. That is
what makes it fun.”
Looking to the future, Stordalen aims
to take the top spot in all major Nordic
cities. “We look for and build flagships in
prime locations such as Malmö, Stockholm,
Gothenburg, Trondheim and Oslo,” he says.
“From the beginning, people told me I would
lose money on this, but what seems like a
bad idea for others seems to work for us.”
And however big the business gets, its
carbon footprint doesn’t have to grow with
it. Stordalen is well known for his interest in
environmental issues and places it near the
top of his priorities. “Being the largest hotel
chain in Scandinavia, we want to be a part of
the solution to one of the biggest challenges
our generation is facing,” he says. “Hotels
affect the environment in many ways, both
directly and indirectly. We have to do what
we can to make a positive difference. No
matter how small and insignificant each of
us may seem, we spend every day proving
that if we all pull in the same direction, the
results we get are far from insignificant.”
His phone rings several times during the
interview, but he doesn’t answer. Until now:
it is his daughter, Emilie. They talk about
her day and, before he hangs up, he tells
her how much he loves her. “You can’t say
it too often,” he says. “I want to make sure
she knows, and I think positive words are
really important. If you do that with your
employees as well, even the cleaning lady
will be happy and proud of her job.”
The subdued economic climate not
only affects business confidence,
it’s also putting a damper on the job
market. With limited opportunities
and cuts aplenty, people are
understandably afraid of changing jobs
fearing they might fall foul of the old
dictum “last one in, first one out.” As
a result, people are staying put.
By accepting pay freezes, workers
are hoping to safeguard their jobs
and those of their colleagues, but
this benevolence shouldn’t be seen
as an opportunity to relax good
management practices or avoid
incentive schemes. Quite the opposite.
When times are
tough, the last thing
you need is listless
staff devoid of drive
and ambition
Where cuts have been made, they
have often been used to target the
very weakest performers, leaving
the cream of the crop to do the
same job but with less manpower.
It is certainly a challenge and, if
handled insensitively or without the
appropriate support, can lead to staff
becoming dissatisfied or, even worse,
demotivated.
In fact, companies that are doing
well despite the downturn are often
those employing robust management
practices that encourage and guide
staff through the troubled waters
of the credit crunch and provide
safe passage to the economic
recovery. Companies that flout their
responsibilities run the risk of turning
good performers into decidedly
average workers who feel undervalued
and overworked.
It is important, therefore, to
celebrate the smallest of victories and
acknowledge the role that employees
play in achieving these successes.
In a crisis, it is all too easy to focus
on immediate problems, such as
cash flow, and ignore longer-term
issues that can be just as important.
For instance, setting goals that are
transparent and relevant will mean
that when certain objectives are met,
they can be properly recognized and
suitably celebrated.
By doing so, your staff will remain
at the top of their game, driven by the
ethos of teamwork and enthused with
the purpose of succeeding collectively.
The alternative is an uninspired
workforce reluctant to go that extra
mile but equally unwilling to look for
new jobs due to the frailty of the job
market. When times are tough, the
last thing you need is listless staff
devoid of drive and ambition.
If you cultivate a managerial
approach that encourages
achievement and rewards success,
you will retain your top-performing
staff and also keep them motivated
whatever the future holds. After all,
when the upswing comes, they will be
the first asset to hang on to.
More information
To learn more about Ernst & Young’s Human Capital (HC) services, please
visit ey.com/humancapital or contact one of the following HC leaders in your
respective area: Tina Frydensberg at tina.frydensberg@dk.ey.com (Nordics);
Peter Ferrigno at peter.ferrigno@cz.ey.com (EMEIA); or Dina Pyron at
dina.pyron@ey.com (Global and Americas).
Exceptional July–December 2011
51
e
Profile: Novamex
“
words Frances Hedges_ photography Martin Crook
verybody’s going green these days,” says
Michel Leuthy, CEO of Novamex, without
a trace of bitterness. Having launched the
environmentally friendly cleaning-product
brand L’Arbre Vert (or “Green Tree,” as it is known in English-speaking
markets) more than a decade ago, he has good reason to resent the recent
influx of “green” products. Yet Leuthy sees the companies behind such
products less as a threat than as a sign that the market is moving in the
right direction, finally realizing the potential of a trend that he was among
the first to adopt.
Ahead of the pack
A greener
cleaner
L’Arbre Vert is France’s biggest
eco-cleaning product brand.
Michel Leuthy, CEO of its parent
company, Novamex, tells us
about the brand’s international
success – and where there’s
still work to be done
Leuthy describes his move into ecological cleaning products as a
combination of chance and foresight. By the end of the 1990s, with
traditional industry on the decline, his commercial chemical company
Quadrimex (now Novamex) was beginning to lose momentum and he felt
the need to diversify. His opportunity came in 2000, when he bought an
industrial site near Poitiers, about three hours southwest of Paris, inheriting
eco-friendly brand L’Arbre Vert along with it.
At the time, L’Arbre Vert mainly used large-scale retailers to distribute and
brand its products. It had failed for several reasons, says Leuthy: “First, its
products were too expensive and, second, there wasn’t enough interest from
consumers in being green.”
Leuthy began to turn things around by applying for European Ecolabel
certification, which flags up a company’s green credentials to consumers.
Then, armed with evidence of his products’ high environmental standards
and effectiveness, he made the case to retailers for why L’Arbre Vert
products should be sold at the same price as their non-green equivalents.
The first retailer to stock the products was French hypermarket group
Carrefour, which is still responsible for 37% of sales. Having passed the first
hurdle, there was a domino effect. “Once you appear on supermarket shelves
and have concrete sales figures to show other retailers, you can really make
your mark,” says Leuthy. “You have to build up a business progressively,
Exceptional July–December 2011
53
Profile: Novamex
and that takes time, but I’m satisfied with the speed at
which we’ve been able to develop.”
Today, L’Arbre Vert has a turnover of €24m (US$33.4m)
— 15 times higher than in 2004 — and a 10.7% share of
France’s green cleaning-product market, making it the
leading manufacturer in its category. Leuthy puts this
down partly to fair prices and partly to the high quality
of the products, which conform to a strict “charter” of
values. The company’s pledge to minimize its impact on the
environment, and ensure that products are hypoallergenic,
may explain why customer retention is so high: 48% of
people who make a purchase remain loyal to the brand.
Leuthy’s challenge is to maintain this position in a
€1.3b (US$1.8b) market that is becoming increasingly
competitive, with more and more companies launching their
own eco-friendly ranges.
“Like all small to medium-sized enterprises, we have
to innovate constantly,” he states. “I have seven full-time
employees working in R&D, and every year, we launch three
or four new products.” In addition to the personal hygiene
range — shower gels and shampoos — that went on sale in
2008, there are plans to release a range of creams and
lotions in 2012.
The impact of a new launch on the company’s bottom line
is by no means immediate, admits Leuthy.
“It’s hard to convince marketing teams that retailers
should make space for our products on their shelves,” he
says, adding that the company dedicates more than 7% of its
annual turnover to marketing and
communication in an effort to raise
the brand’s profile.
“When we launched our personal
hygiene range, for example, we were
competing with organic products
for prominence, so we lost a bit of
time in getting noticed,” he says.
“I have seven full-time employees
working in R&D, and we launch
three or four products every year”
Leuthy at
Novamex’s
factory in
Avignon, in
southern
France
54
Exceptional July–December 2011
“This year, however, we’re expecting more
retailers to come on board.”
Leuthy has encountered a mixed
reception to L’Arbre Vert in overseas
markets. A venture into the UK in 2006
met with limited success; competitor Ecover
proved a force to be reckoned with, not to
mention the numerous supermarket ownbrands that dominate the UK market. So,
rather than risk accumulating debt, Leuthy
decided to focus his efforts on areas of
higher consumer demand, namely Belgium,
Switzerland, Portugal, Greece, Hungary and
some French overseas departments.
Looking east
He is optimistic about the brand’s prospects
in China, where it has a strong network of
distributors that import the products, create
labels in the native language and sell them
to local stores. “If sales take off, we might
eventually begin manufacturing in China,
but, for now, I’d prefer to leave it to the
distributors to build up our profile locally,”
says Leuthy.
In order to keep debt levels to a minimum,
he intends to concentrate on the domestic
market, which accounts for more than
90% of turnover. “Before I try to win the
World Cup, I want to win the Coupe de
France,” he jokes.
With this in mind, Leuthy hopes to
bring on board the one major French
retailer that does not yet stock L’Arbre
Vert products. He also has ambitious
financial targets, aiming to increase
turnover to €30m (US$41.8m) by the
end of this year, €50m (US$70m) within
three years and €100m (US$139.3m)
within five or six years.
Leuthy is conscious of the need for a
sustainable financial model in realizing
this goal. His technique, he says, has
always been to “distribute capital around
the company and maintain financial
independence.” More importantly, he is
determined to continue building a company
that both management and employees can
be proud of, with exceptional production
facilities and a satisfied workforce.
“Do everything the best you can; you can’t
do better than that,” says Leuthy. And if the
growth of L’Arbre Vert is anything to go by,
he isn’t doing badly at all.
Viewpoint
The rise of the
ethical consumer
Eric Mugnier, Executive Director, Climate Change and
Sustainability Services, Ernst & Young France
For the past 10 years, green issues
have only been a concern for a
minority of consumers. At the
moment, between 5% and 20%
of consumers, depending on the
country, buy “green” products.
However, sales of organic and
green products are growing by a
two-digit figure, while the overall
market is growing by between 1%
and 5% a year. Less than a decade
from now, most consumers will
Sustainability
management
allows the retailer
to build on its
brand and enhance
its reputation
consider environmental issues
when buying products.
Among international brands,
retailers were the first to recognize
this trend. This creates a number
of challenges. One is how to
communicate with consumers
about products’ environmental
performance. A number of initiatives
are under way globally to help
address this, but in 5 or 10 years’
time, we will have this information
for every product, just as there
is nutritional information on food
products. Retailers will have to
manage much more information
for their own products and those
manufactured by others.
The second issue is that there will
be additional criteria to integrate into
procurement practices. Companies
already compare products on the
grounds of cost, quality, logistics
and a host of other factors. Now
they will also have to consider
environmental factors (which
often include energy and waste
management costs). Companies will
also need to reconsider suppliers for
their own brands to enable them to
compete on environmental grounds
with other products.
While these moves will pay off
over the long term, there are
short-term costs. There is the
obvious cost of R&D, of finding
and securing alternative sourcing,
and of data management.
The benefits of sustainability
management, however, are
compelling. It allows the retailer
to build on its brand, enhance its
reputation and provide a vital point
of differentiation. It also generates
energy and material savings. As an
illustration, retailers that became
the first in their market to stop
offering free plastic bags, and instead
offered longer-lasting alternatives,
made money because they saved on
the cost of the plastic bags and it
enhanced their image significantly.
More information
To discuss your climate change and sustainability reporting needs, please
contact Eric Mugnier at eric.mugnier@fr.ey.com (France), Stephen Starbuck
at stephen.starbuck02@ey.com (Americas) or Juan Costa Climent, our Global
Head of Climate Change and Sustainability Services, at juan.costacliment@
uk.ey.com. To request a copy of our report, Action amid uncertainty: the business
response to climate change, please contact Sheetal Shah at sshah7@uk.ey.com
Exceptional July–December 2011
55
Analysis: Trade flows
Wendre
exports a large
percentage
of its output
to retailers
in Sweden
A shifting
balance of power
Russia, the Nordics and the Baltics
are traditional trading partners. But
as Russia emerges as a global
economic power, how does this
change the current dynamic?
words Andrew Osborn and Joanna Sinclair
Russia is a high-risk
place to do business, but
can offer ample rewards
56
Exceptional July–December 2011
Peter Hunt, founder of Trading House
“Trade flows have
changed dramatically
in the past year”
Risto Venermo
Partner, Russia
- Nordic Desk Leader
R
isto Venermo, head of
Ernst & Young’s Russia-Nordic
desk, believes that there is a
wealth of opportunities in Russia
that Nordic and Baltic investors have yet
to capitalize on. But as someone who has
been working with the country for almost
two decades, he admits that it is not an
undertaking for the faint-hearted.
“Doing business in a non-domestic
country is not easy anywhere, but Russia
is a high-risk country,” he says. The upside
is that the profits are often much higher in
Russia than in more mature markets. But
he says that many European entrepreneurs
underestimate how tricky it can be to
navigate Russia’s complex legal, political
and bureaucratic undercurrents.
“The legislation is not crystal clear
and changes a lot, while the tax regime
is difficult to understand,” he says.
“Bureaucracy for SMEs is unbelievable and
just trying to establish a company in Russia
can take forever. You need to accept all of this before going into Russia.”
European Union figures show that Russian exports to the EU’s 27
nations were worth €154.9b (US$224.7b) in 2010, while EU exports to
Russia were worth a comparatively small €86.6b (US$125.6b). But this
is misleading. Almost four-fifths of Russian exports were oil and gas or
P
eter Hunt, the founder of Trading House, knows all
about trade flows. Headquartered in the Swedish city
of Norrköping, Trading House is an investment group that
includes one of Europe’s largest bedding manufacturers,
with operations in six countries. Ninety-five percent of
what it produces is exported, mostly to Europe, North
America and Asia.
Sweden and Estonia are key to Hunt’s business empire. It
is based in Sweden, while Estonia is the main manufacturing
hub. “Estonia is maybe not the best location, because it is in
the corner of Europe, but we have the very latest machinery
there, labor costs are relatively low and we feel very well
positioned,” he explains.
The group’s Estonian subsidiary,
Wendre, has two factories in the towns
of Pärnu and Vändra. Hunt, a Swede of
Estonian origin, began investing in Estonia
in 1995. “My parents were from Estonia,
I speak the language and I felt at home
there,” he says. “They needed people from
the West, and Estonia was very liberal when
it came to investment.”
Wendre, which produces all manner of
bedding materials, now employs 700 people
and exports a large percentage of its output
to major retailers in Sweden. Hunt says that
Wendre’s goods are aimed toward the lower
end of the market and that raw materials are bought in from
Asia. Although materials such as cotton have increased in
price over the past year or two, Hunt says the impact has
been limited. Wendre was forced to pass on these higher
costs to clients, he explains, but the lower end of the market
was less affected than the premium segment.
Hunt sees a bright future for manufacturing and trade
in the region. Skeptical of China’s longevity as the world’s
workshop because of pressure on its currency, labor costs
and long transport times, he says that customers are
changing their purchasing strategies. “Trade flows have
changed dramatically in the past year and a lot of big
customers are now looking for local sourcing,” he says.
“This opens up opportunities for all of Central, Eastern and
Western Europe. We are convinced that there will be a shift
of production away from Asia to Europe.”
Eyeing expansion, he says he is watching Russia. If and
when it joins the World Trade Organization, he says he would
definitely be keen to do business there.
57
Analysis: Trade flows
In 2010, Russian exports to the EU’s 27 nations were worth
€154.9b
...while EU exports to Russia
were worth a comparatively small
€86.6b
(US$125.6b)
(US$224.7b)
energy related, while EU exports to Russia comprised
a wide range of manufactured and food products —
showing a diverse market and plentiful
opportunities. Venermo says the EU will
remain an interesting market for Russian
energy exports for decades. But with a
population of about 143 million people
and underdeveloped consumer goods
sectors, the Nordic and Baltic consumer
and business-to-business markets remain
relatively unattractive for Russian
companies. Instead, if you strip out the
distorting effect that oil and gas trade has on
trade figures, the real focus of current and
future trade is exports and investments from
the Nordic and Baltic countries into Russia.
With the Kremlin conceding that there is
an urgent need to modernize its economy, foreign investors
will have numerous opportunities in the future. Venermo is
already helping businesses in Finland, Sweden, Denmark and
Norway set up and operate in Russia, and occasionally helps
companies based in Estonia, Latvia and Lithuania as well.
He singles out Finland and Sweden as the two most
important trading partners with Russia. Once a part of the
Russian Empire, Finland had always traded actively with
Russia due to its historic ties and shared border. “Finnish
companies are focused on selling consumer products into
Russia and are big on construction in St. Petersburg and
Moscow,” he explains, adding that they were also
big investors in the Russian electricity sector.
Venermo says that business in Sweden, Russia’s
second most important regional trading partner, is
generally wealthier and more capital-rich than that from
Finland. Next in the trade pecking order, he says, come
Denmark and Norway, followed at some distance by the
Baltic countries. “Denmark is more opportunistic and
tackles things on a case-by-case basis,” he says. In contrast,
Norway is more focused on individual sectors, notably the
oil and gas industry, where it has considerable expertise in
drilling, exploration and
other services.
Venermo says there
are two potentially major
business opportunities for
foreign investors in Russia.
The first is its impending
membership of the World
Trade Organization, a
development he predicts
will bring down many of
the protectionist trade
barriers currently in place.
“Ideally, we’d want Russia
to be in the World Trade
Organization next week,” he says, while warning that red
tape and last-minute political haggling might continue to
delay what would be a breakthrough moment.
The second opportunity is likely to come as and when
Russia pushes ahead with opening up the so-called strategic
sectors of its economy, from mining to ship building, in order
to tap foreign expertise and capital. “I’m doubtful that Russia
can develop these sectors itself,” he explains. “It needs
capital, knowledge and competence. Russia has a wealth of
those, but not enough, and there will be lots of opportunities
in service industries in these sectors.”
There are two
potentially major
opportunities for
foreign investors
in Russia
58
Exceptional July–December 2011
Maarit Toivanen-Koivisto, Chairman of the Board, Onninen
“If you want to grow,
east is the way to go”
M
aarit Toivanen-Koivisto is Chairman of the Board
of Finnish company Onninen, which provides
materials services to contractors, industry, public
organizations and technical product retailers. It has been
family-owned ever since Koivisto’s grandfather Alfred
Onninen founded it in 1913. Today, it is present in nine
countries and employs 3,000 people. Russia and the Baltics
are familiar territory.
“We started in Estonia in 1993 and set up operations
in Russia a year later,” says Koivisto. “Business in the
East is tough at times, but when you’ve built palaces in
Baghdad and currently operate in Kazakhstan, Russia and
the Baltics aren’t too exotic. It calls for entrepreneurial spirit,
Maarit ToivanenKoivisto’s
grandfather,
Alfred Onninen,
founded the
company in 1913
but luckily Onninen is
known for it.”
Estonia, Lithuania and
Latvia receive praise
from Koivisto, but she
admits that the markets’
small size and economic
situations have been
issues for Onninen.
“Right now, business is
not that lucrative,” she
says. “Latvia still has a
long way to go before it
becomes an attractive
market. Then again,
never say die. Estonia
and Lithuania are making
a good recovery from the
credit crunch.”
Russia has had its ups and downs, but the market
has always been important to Onninen — one of the few
companies to keep a presence in Russia even through
the 1998 devaluation. Yet Russia is one of Onninen’s
core concerns. “Russia is a land of vast opportunities for
companies conducting ethical, transparent business,”
says Koivisto. “If you want to grow, east is the way to go,
at least in our strategy. You just need to know how to
separate the honest deals from the rest.”
59
Profile: Kazakhstan’s banking sector
Banking
on change
Grigory Marchenko,
Chairman of Kazakhstan’s
National Bank, on the
country’s innovative approach
to bank restructuring in the
wake of the economic crisis
words Igor Pereverzev_ photography Adil Dasykov
60
Exceptional July–December 2011
F
or Kazakhstan, as for many
nations, 2009 wasn’t easy:
it faced a deteriorating
economic situation, defaults
by financial institutions and a devaluation of
the national currency. Realizing that much
depended on resolving the debt problems
of the country’s major banks, the Kazakh
Government took an innovative approach to
restructuring bank loans while maintaining
macroeconomic and financial stability in the
country. After the successful restructuring
of three major banks, Kazakhstan’s financial
system began to recover. This has much to
do with Grigory Marchenko.
Marchenko has held numerous highlevel posts at Kazakhstan’s National Bank
and in the Government, and was part of
the taskforce that created a new national
currency: the tenge. In January 2009,
Marchenko was appointed Chairman of the
National Bank for the second time.
A week after he once again took up this
role, there was an abrupt devaluation of the
national currency, which lost about a quarter
of its value. “The devaluation was necessary,”
says Marchenko. “Maybe it should have been
done earlier, but I wasn’t at the National
Bank then. Subsequent developments have
confirmed that we were right.”
The crisis hit Kazakhstan a little sooner
than it did other emerging markets; the
first signs became apparent at the end
of 2007, after the country’s real estate
bubble burst. The construction and financial
sectors, once engines of the economy,
began to experience serious problems. The
financial institutions that had developed
most aggressively turned out to be the most
vulnerable. The problem was exacerbated
by the fact that syndicated loans and bonds
issued in the West were the chief method of
funding for many of Kazakhstan’s banks.
As a result of the February 2009
devaluation, syndicated loans denominated
in dollars essentially grew by a quarter,
while income-generating bank assets were
denominated in tenge. The general economic
situation was getting worse, which affected
the quality of loan portfolios, and banks were
having a hard time servicing their debts.
The devaluation meant that the majority
of financial institutions, some with state
help, stayed afloat. The biggest ones came
almost wholly under state management. The
state acquired significant blocks of shares in
two other major banks.
Banking’s rocky past
Boards of creditors asked the Kazakh
authorities to cover the debts of banks
in which the state had an interest. “They
said, ‘We’re used to banks being rescued,’”
Marchenko recalls. “We told them, ‘We’re
used to banks being liquidated.’” And that
was indeed the case. In the 1990s, due to
stricter requirements, the majority of credit
institutions in Kazakhstan were forced to
close or merge. In 15 years, the number of
banks in the country fell from 234 to 38.
The Kazakh team took a clear position: if
creditors don’t agree to restructuring, bank
failures will result in investors getting
7–8 cents on the US dollar in several years’
time. “In the West, threats like this aren’t
real in most cases, but we’ve never rescued
anyone and we take the concept of moral
hazard very seriously,” says Marchenko.
The talks weren’t easy for Kazakhstan,
especially in the first months. “Mutual
grievances and misunderstandings got in
the way,” says Marchenko, “but then the
principle of sharing losses and responsibility
became clear to everyone.”
However, these difficulties forced the
Kazakh team to find non-standard solutions
and break the stereotypes that had
developed in the global financial market.
This led to restructuring agreements being
signed for the three main banks in 2010.
“We were the first to use so-called major
advisors,” says Marchenko. “As well as
the investment banks and law firms we
invited, we retained the services of two
people absolutely loyal to our country, and
they used their authority in the West to
systematically explain Kazakhstan’s position
on this issue to the market.”
So the threat was eliminated. In late
October 2010, at the Kazakhstan Business
Forum in London, Marchenko met with
investors and found that they were satisfied
with the results of restructuring. “We
managed to get many of them to write off
the major part of what they were owed,” he
says. “Getting 30–40 cents on the dollar is
a hard, but reasonable, compromise.”
This compromise resulted in positive
trends and the recovery of the banking
system as a whole. In 2009 and 2010, the
deposit base in Kazakhstan continued to
grow, testifying to restored confidence in the
banking system. In 2009, personal deposits
grew by no less than 29%.
Now, however, the country has another
problem: Kazakh banks still haven’t begun
to lend, despite excess liquidity throughout
2010. Financiers say that companies are
overborrowed and shouldn’t be given
new loans. Marchenko confirms this, but
says that it concerns a small number of
borrowers that are well known to banks.
These owners need to find equity investors
— a reasonable solution — and credit
institutions need to return to the old practice
of “cultivating” borrowers.
National Bank research shows that 72%
of Kazakh companies in the real sector have
never taken out loans. They don’t go to banks
because they think they won’t get a loan — at
least on favorable terms. With the banking
sector now on more stable footing, however,
Kazakhstan has an opportunity to use the
lessons of the past to open a new era of
banking, which is just what it intends to do.
Exceptional July–December 2011
61
T
Regular: Doing business in…
North Africa
51%
City-bound: Africa
has the fastest rate of
urbanization compared
with all other regions
and will more than
double its urban
population over the
next two decades to
750 million in 2030 and
1.2 billion by 2050
urbanized
East Africa
Central &
West Africa
42%
21%
urbanized
urbanized
Doing
business in
Africa
Investors are looking past
recent political turbulence
to an emerging market
with success stories across
many sectors. So what do
they need to know?
words Kim Gurney
62
his year’s political
upheavals in North Africa
caught many observers
by surprise but did not
change the investment fundamentals
of the continent, according to Victor
Kgomoeswana, Associate Director of the
Africa Business Center at Ernst & Young.
They showed how different North Africa is
to the rest of the continent, yet investors do
not see Africa as a whole as having greater
political risk. “Investors can look beyond the
immediate turbulence,” he says. “I believe
they understand that Africa has taken on a
new trajectory — it’s not going to degenerate
into a wasteland or lawlessness scenario
that people may have previously thought.”
Not everyone is as confident, however.
According to EPFR Global, a US-based fundtracking firm, African regional equity funds
recorded their fifth straight week of outflows
(an exodus of capital) in March 2011. This
is, however, symptomatic of a wider trend:
during this period, emerging-market equity
funds also saw one of the longest outflow
streaks since the third quarter of 2008.
Kgomoeswana is unfazed. “It’s a
speculative response to the recent political
upheaval,” he says. He believes that the
longer-term African prospects remain
positive and that investors are, and will
continue to be, attracted to the continent.
City-bound
Southern Africa
46%
urbanized
Part of this can be attributed to the fact that
Africa has the fastest rate of urbanization
compared with all other regions and will
more than double its urban population over
the next two decades to 750 million in 2030
and 1.2 billion by 2050, according to 2010
UN-HABITAT data.
The fastest-growing cities
are mostly sub-Saharan, with
Dar es Salaam topping the list
and Accra, Nairobi and Addis
Ababa close behind. This
marks a shift from years past:
UN-HABITAT figures show
that, in 2008, North Africa
was already 51% urbanized;
Central and West Africa 42%,
Southern Africa 46% and East
Africa just 21%. With this
urbanization has come
a huge consumer market. “Those
investment trends are not going to be
reversed,” Kgomoeswana says.
Africa is home to a billion people,
including an emerging middle class, and
there is increased talk of a wall of global
money looking for an African home. The
extractive industry is a common investment
theme — even Zimbabwe saw its mining
sector grow by more than 30% in 2010.
But Kgomoeswana says that Africa is not
a single-sector growth story: this emerging
market spans biofuels, energy, property,
IT, agribusiness and infrastructure.
Group think
Likewise, investors should think of Africa
not as single countries but as regions. By
way of example, Kgomoeswana cites the
East African Community, which comprises
Rwanda, Kenya, Tanzania, Uganda and
Burundi — totaling about 140 million people.
He adds that operating in alliances is
increasingly important, citing the virtual
communities and new information flows
that helped fuel the North African uprisings.
“Political borders are irrelevant,” he says.
“Anybody who is closing themselves off is
missing the point … The African borders are
not relevant to the cultures of Africa, and
trade doesn’t conform to them either.”
Kgomoeswana holds up Rwanda
in particular as an example of an
African country that has succeeded in
communicating a vigorous reform message;
the IFC/World Bank’s 2010 Doing Business
report identified it as the world’s top
reformer of business regulation. “You see
it every day, everywhere,” he says. “I get
the feeling when I’m in Rwanda now that
they are unified in their goal to rebuild their
country. It’s exciting to see
it happening.”
Increased mobility forms
part of this new dynamic.
Expanding into Africa
inevitably involves moving
people, which triggers taxefficiency issues. “When
you plan your strategy, you
need a good tax advisor.
The tax implications of
bringing people in vary
from one country to the
“Bringing in
locals when
you start gives
you a national
and local
character”
next,” says Kgomoeswana. Finding the right
person for that placement has also become
key, with plenty of companies falling by the
wayside because of inadequate staffing,
rather than a poor product.
Any foray into new markets can pose
cultural challenges for investors. But
Kgomoeswana says the way to deal with
this in Africa is no different than crossing
any other border. “If you are in Sweden
going into Norway, the culture is different;
from Canada into the US, the culture is
different. You have to respect that. If you
are aware and conscious that you are
dealing with different people, if you open
your mind and do not make assumptions,
then you will succeed.”
He says a mistake that many new
investors make is to enter African markets
with a superiority complex that may
undermine their business goals — but it
is here that local partnerships can help.
“Even as you start, think how you are
going to bring in the locals to make this
work, because it gives you a national and
local character,” he says. Investing time
and energy into figuring out what the local
priorities are is crucial if you are to avoid
operating at cross-purposes.
Africa is a continent often beset with
negative stereotypes of bribery and
corruption, but Kgomoeswana gives this
short shrift. “I wish people could get it out
of their minds,” he says, “because not only
do you derail yourself and compromise your
ethics, you also play into the stereotype that
foreign companies are all there to loot.
“In 2011, you can’t be planning your
business like that. This is the year of
partnership — prioritizing sustainability and
social impact, as well as financial impact. It’s
this different mindset that will succeed.”
More information
To request either of the latest reports about
business in Africa, email Nicole Sykes at
nicole.sykes@za.ey.com. Available are the
Ernst & Young Africa attractiveness survey,
It’s time for Africa, launched at the World
Economic Forum, and How to write yourself
into the African growth story, a report on how
to begin your growth strategy for Africa.
Exceptional July–December 2011
63
Regular: Beyond profit
S
pinal cord trauma affects more people than
just extreme sports athletes. “Fate doesn’t
ask. It can happen to anyone,” notes Anita
Gerhardter. As Managing Director of the
Salzburg, Austria-based Wings for Life Spinal Cord Research
Foundation, she must repeatedly get that message out to
potential donors.
The statistics speak for themselves. Every year, 130,000
people worldwide suffer from a serious spinal cord injury.
About half of these are caused by car accidents. The
“typical” patient, a 33-year-old male, will spend up to 40
years in a wheelchair.
Wings for Life, which is dependent on private donations,
was founded in 2004 to fund promising medical research
projects worldwide. It was the brainchild of Austrian
motocross champion Heinz Kinigadner, whose son was
paralyzed after an accident in a motocross charity race. Due
to the pharmaceutical industry’s lack of interest in exploring
new treatments, Kinigadner teamed up with Dietrich
Mateschitz, CEO of Red Bull, to found Wings for Life.
So far, it has invested €5.6m (US$7.9m) in 42 research
projects worldwide. Gerhardter, who took over as MD in
2008, oversees a staff of six tasked with fund-raising,
administration and marketing. Three scientific directors and
a scientific advisory board monitor the research projects.
Among Gerhardter’s hardest tasks is convincing potential
donors to invest in research that may not yield immediate
Competing for growth.
Will you be there?
Strategic Growth Forum – India
Growth insights for exceptional enterprises
“It’s like
collecting
puzzle pieces
and exploring
how they fit
Anita Gerhardter of spinal cord
together”
Taking
flight
words Renée Cordes_ photography Anne Lewis
64
Exceptional July–December 2011
The Westin Hotel, Mumbai, 10-11 June 2011
A high quality networking and knowledge platform for
founders and CEOs of fast-growth entrepreneurial companies,
with eminent speakers from India and across the world.
© 2011 EYGM Limited. All Rights Reserved.
research foundation Wings for Life
on the challenges of fund-raising
headline returns. “Progress
in spinal cord research is
not a linear process,” she
explains. “It’s more like
collecting puzzle pieces
and exploring how they
fit together.”
To reach potential donors,
Wings for Life uses media
campaigns and charity
events alongside its website
and other channels. It
also counts on its high-profile ambassadors, many from
the sports world, to spread the word. “Each one of them is
committed to the cause, not just in name,” says Gerhardter.
Every euro donated goes directly to research; the founders
cover all administrative costs.
The hard work is paying off, leading to a growing roster
of corporate donors, from Red Bull to Austrian motorbike
maker KTM. In the coming years, Gerhardter aims to
reach out to an even wider spectrum of private and
corporate donors.
Asked what she finds most rewarding about her job,
Gerhardter cites the fact that every day is different, as well
as the strong team spirit at Wings for Life. “We’re on the
right track,” she says. “The question is not if we can find
effective treatments and a cure for spinal cord injury, the
question is when.”
To register, visit www.ey.com/india/sgf
Contact us at sgf2011@in.ey.com, or call 0091 124 464 4149