BauZentral: Compensation and Governance in the Family Firm

In 2017, the chief executive officer (CEO) and chief financial officer (CFO) of Swiss-based BauZentral, a privately owned family business, faced a restructuring challenge. BauZentral produced and sold electrical systems, plumbing systems, and smart security and energy solutions. In 2014, when the current CEO took over from his father, the company needed to address the growth associated with its successful international acquisition strategy. However, the firm’s historical structure maintained tight family control, which needed to change to address the realities of the international expansion. The CEO and CFO recognized that the firm had too many different regions with different market conditions, products, and competitive environments to be effectively run from the head office. The CEO and CFO planned to use the family constitution and the firm’s financial targets as criteria to devise a governance system to align the interests of management with the interests of the family owners. Their aim was to restructure the organization to achieve the firm’s goal of becoming a global supplier while also respecting the family’s values. What type of new governance and compensation structure should they design for the firm?

The case can be used in undergraduate- and graduate-level courses on family businesses, executive compensation, or corporate governance. The case addresses several challenges that growing firms must confront as they expand operations, including geographic- and product-level diversification. Because the firm is owned by a family, family preferences and dynamics also enter into the discussion. Consequently, the instructor can use the case to examine issues related to diversification strategies, executive compensation, corporate governance, and family business. After working through the case and assignment questions, students will be able to do the following:<ul><li>Identify the priorities for all of a firm’s stakeholders and how they can influence firm decisions. These priorities can be compared to those for a widely-held firm to help examine the differences between family businesses and other businesses.</li><li>Analyze a firm’s competitive environment and consider different ways to align a firm’s strategic vision and management decision-making (i.e., examine potential solutions to the principal-agent problem within different corporate structures).</li><li>Characterize the strengths and weaknesses of different ways of sharing control, profits, and decision-making with all of a firm’s stakeholders.</li></ul>

• family business
• corporate governance