_ 09. June.

2011

FAMILY BUSINESS
THE MAN WHO MAKES PATEK PHILIPPE TICK
PAGE 04 _ PLUS WHY FAMILIES ARE DRIVING DEVELOPING ECONOMIES, PAGE 10 _ AND MAXIMILIAN RIEDEL ON HIS GLASS-MAKING DYNASTY PAGE 14

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FAMILY BUSINESS

FAMILY BUSINESS

FACING UP TO THE FUTURE

in the world, blending old-fashioned craftsmanship with innovation. Most of all, though, it is characterised by a strong, long-termist ethos instilled by its family owners. The companys president Thierry Stern meets Claire Adler at his Geneva headquarters
Among serious watch collectors, Patek Philippe is widely known for the stratospheric prices its watches achieve again and again in auction sale rooms. In 1999, someone parted with a cool $11 million for a Patek Philippe Graves Supercomplication pocketwatch, made in 1933. In 2007, a rare stainless steel Patek Philippe sold at Christies for a staggering $2.2 million, while in 2005 in its privately owned Geneva museum the company held an exhibition of watches previously owned by royalty. Among the rest of us, Patek Philippe is often best known for its ubiquitous (and to some eyes excessively sentimental) ads of impossibly well-groomed fathers and sons and its tagline reminding people who buy a Patek Philippe that they never actually own it, theyre merely looking after it for the next generation. Like the boy in the ads Thierry Stern who took over as fourth generation president of the company in 2009 has been admiring watches since he was a boy. I remember going into my fathers office when I was six years old, he says. My father opened a drawer in his desk and showed me pocket watches with intricate hand painted enamel dials. I always remember those watches, the colour of the drawer and its smell. That was when I rst said I wanted to make watches. The rst time Thierry Stern ever wore a Patek Philippe watch was at the age of 18, when he received a Nautilus for his birthday. In my family you receive your rst Patek Philippe when you are 18, he says. Before that you couldnt understand the product. It would be like receiving a Ferrari for your rst car when youd just passed your test. Now 41, Stern is still in love with the business. Sitting in a meeting room in the grand headquarters of the companys factory and administrative complex which has a view of the striking glass bridge that links two wings of this high security facility, which opened its doors in 1996 at a cost of SwF150 million I ask him whether his is a job for life. He smiles and says: Yes, then hesitates briey and says yes a few more times. After talking to him its hard to escape his a sense of duty, loyalty and immense privilege and responsibility that come with being the custodian of a family empire. The entire business has a sense of longtermism. That also goes for its customers, who often have to wait for their watches. According to Stern, demand for Patek Philippe products always outstrips supply, meaning that many clients wait years for the watch they have ordered. One lady recently went into the store on Bond Street to check the length of the waiting list for the World Time 5131, a highly sought after watch with an enamel dial that shows the time in all 24 time zones. An apologetic salesperson told her she might have to wait up to 10 years. In solidarity, to this day Stern says that he never wears new watches which have come straight out of the factory, because he knows his customers are waiting for them two years or more is normal. Watch repairs can also take the same amount of time. Partly this is a result of uncompromising standards. It takes 1,200 steps to produce the components of even Patek Philippes simplest self-winding movement. In some ways we shoot ourselves in the foot by creating things we know its going to be a nightmare to produce, says Stern, who heads the creation side of the business. But we are constantly concerned with our quest to increase the quality of what we do and to achieve perfection. So Im not going to rush it. We have one lady who works on the enamel dials of the World Time watches to the quality we require. I know that every investment we make now is for the long-term good of the company. Stern is convinced his customers appreciate the value of this long term

THIERRY STERN CV

PROFILE Swiss watch brand Patek Philippe is one of the best-known

Born _ 1970 1988-90 _ Business studies at Ecole de Commerce, Geneva; Watchmaking school of Geneva 1990-96 _ German Patek Philippe retailers; New York Patek Philippe subsidiary founded by Thierrys grandfather Henri Stern; Patek Philippe case and bracelet workshop 1997_ Marketing manager for Benelux 1998 _ Head of product development, Geneva 2006 _ Vice president and member of management committee 2009 _ Patek Philippe president and management committee member

Thierry Stern has loved watches since he was six

view. Our customers are looking to invest in real value. We still repair and restore all our watches. After 30 years, many big watch companies
Lesley Wild, of Bettys & Taylors Group, one of the IFBs top family businesses for stewardship, p08

wont x your watch. But 30 years is nothing for Patek Philippe because we commonly repair watches that are 100 years old. Thats our philosophy, he says. At auction, the majority of watches fetching record prices are from Patek Philippe, he adds, although it is widely acknowledged that the company itself is a regular auction bidder, buying up classic watches for its private museum collection. Thierrys father Philippe has even been known to show up to a Geneva

auction in a tracksuit, looking like he has just arrived from the gym to make a quick multimillion franc purchase before leaving. The companys board is patriarchal it consists of Thierry Stern, his father and honorary president Philippe Stern and managing director Claude Peny. Thierry has two older sisters one who looks after VIP clients in the Geneva boutique and one who left the company. The company typically plans two years ahead when it comes to watch design that department is run by Thierrys wife Sandrine. The couple met at industry trade show BaselWorld when Sandrine, the daughter of a Geneva jeweller, organised an event for international retailers. They have two sons, aged eight and nine. But can this sort of business continue to ourish? There has been a lot of consolidation in the luxury industry in recent years and the vast majority of Swiss watch companies

belong to either the Richemont or LVMH luxury goods conglomerates. Can Patek Philippe remain independent? Stern thinks so. We plan our strategy like chess. With no shareholders, our independence enables us to focus on a clean and clear strategy with long-term vision, he says. And what about Asia, the big new market for luxury goods? While more fashion-conscious luxury brands from Louis Vuitton to De Beers and Gucci cater to the burgeoning middle class there, some might think that Patek Philippe, with its more conservative aesthetic, might struggle to carve out market share. Well maybe. The entire watch industry has seen a conservatism in watch styling of late, proving that fashions come and go. And during our trip to the companys museum, almost every visitor was Asian. The company has a longstanding presence in the United States Thierrys grandfather Henri Stern spent 20 years in New York

but today its strongest markets are Europe, the Middle East and Asia. Family businesses have a reputation for avoiding risk. But Thierry Stern is adamant that Patek Philippe has embraced risk for the long term gain of the company whether by investing in a state-of-the-art building when shareholders would rather have kept the money for themselves, new technology to increase the accuracy of its watches, or research into the performance of specic materials. We take risks to stay at the top of the pyramid. I think that if people say Patek Philippe is risk-averse, it is because they are jealous of our success. Despite its conservative image, the business is forward looking, Stern insists. It channelled serious investment into machinery to research how silicon can improve the smooth running of its watches, resulting in the introduction in 2005 of the silicon escapement wheel. We had no idea when we started whether it would be a success. But I believe

that either you take risks, or you die. Respect for Patek Philippe comes from the fact that we are always evolving, step by step.

Stern says that joining the business instead of going to university was the hardest decision of his life
Stern refers to his decision to join the company full-time at the age of 19 as the hardest of his career to date. I like travelling, but I dont like sitting for very long, he says. He decided university was not for him and instead he chose to climb the ranks starting with two German retailers, moving on to the New York subsidiary, returning to production in Geneva, then heading the Benelux market. He became head of product

development before becoming vice president and then president. There are no books that teach you what Ive learned working my way up in the business over the last two decades, he says. With our product, I can seduce intelligent people to work with us to run the nancial aspect in fact they have proved to be some of my best teachers. What I love is not numbers or reports, but watches. There must be some stress in taking over the reins of a family business, and Stern says the greatest challenge has been accepting he is not the same person as his father. Many people taking over a family business expect to be as good as their parents. But I dont think I should try to be the same. They key is to surround yourself with great people to call on when help is needed. Under Stern the business has ourished. When his father took over as managing director in 1977 there were 150 employees. Today there are close to 1,500.

Typically for a family businessman, Stern takes a keen interest in his workers. The greatest lesson Ive learned from my parents is to respect people and to say thank you. There are people in our factory responsible for making the smallest holes on miniscule watch components and they are not on the highest salaries, but if they dont do it, I dont have watches. My father really pushed me to appreciate other peoples hard work, he says. Stern knows that the family business image is important for customers. With most brands, CEOs are not experts on the product, they are more concerned about shareholders. But our customers really care about the manufacturer of their watches, he says. Our customers appreciate the fact we are a family business. They enjoy meeting us, sharing our passion about passing their watches on to the next generation of their families. If there is one challenge to rms like Patek Philippe, with their tra-

dition and craftsmanship, it is technology. As if to underline that he is in tune with the modern world, Stern checked his iPhone twice during our meeting, once to clear time for the photographer. Is he worried that Patek Philippe might be left behind? Not at all. I have noticed that the more successful digital and virtual technology have become, the more success we have had with our mechanical technology, he says. We have many clients from the IT and technology industry. Their own products have a short shelf life, which is probably why they love our watches. The fact there is no battery and that its all handcrafted somehow brings you down to earth. In a functional world, there will be always be a place for luxury, he thinks. No-one needs a Patek Philippe watch. The only one who is stuck with no choice but to wear one is me, he quips. Our work is not vital, its about beauty, passion and history. Thats why it has to be perfect.

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