David de Rothschild: Banking on family ties

Baron David de Rothschild, the chairman of Rothschild Group, recounts a story when entering New York 10 years ago. “As I passed through immigration and showed my passport the official asked me if I was from the great wine family,” he says. “I said yes, and then he asked me why I was visiting. I told him it was to see our bank here—and he looked perplexed.” The immigration official had never heard of Rothschild the bank.

The encounter might say more about brand awareness in the modern age than anything else, with banks always scoring low certainly compared with many luxury brands. But the unawareness of Rothschild the bank as opposed to Rothschild the wine looks very out of place when considering the two businesses’ place in history. Rothschild’s two great wines, Lafite and Mouton, might be among some of the best wines produced in the world – no mean feat. But Rothschild the bank literally financed the industrialisation of Europe and in the process helped create modern European nation states, making it one of the most influential financial institutions of all time.

Behind all this is arguably the greatest family business dynasty of the modern era – a dynasty that is now in its sixth generation of family control, which stretches across much of the world, and has created such wealth that it is impossible to put a credible figure on it.

Speaking to Baron David, it’s easy enough to get intimidated about all the grandness of the family, the bank and the wine, particularly in a room surrounded by portraits of many of his illustrious ancestors. It’s almost like one is speaking to a European monarch, such is the reverence in the world of business the Rothschild family is held in.

And there’s little doubt that there is much of the aristocrat in Baron David. You get that from being a senior member of the sixth generation of the Rothschilds, more than being a member of the Austrian nobility, where the honorific comes from, although that also helps. But sketched deeply into his face is the full weight of being one of the main proprietors of the family’s name and legacy. There is humanity there as well, or at least more than you might find in many of the masters that control the big financial institutions of today. Lucian Freud, the great painter who died last year, might have enjoyed painting his portrait. There would have been plenty for the artist to work with in that face. Indeed, Freud painted Baron David’s cousin Jacob Rothschild – the artist and the banker were friends.

It’s easy to get carried away by Baron David’s presence – and this no doubt adds to the appeal of doing business with the bank. You can imagine that a lunch with him, washed down with a bottle of Lafite, in the bank’s newly opened, architecturally cutting-edge building (pictured right) situated in possibly the best address in the City of London, has a lot of appeal. Many a business relationship with the bank is likely to have started this way.

But all this European aristocracy, grand name and incredible wine also begs the question of whether this is enough to run a bank in the 21st century. Certainly, you would be wrong to dismiss Baron David and his cohorts as some throwback to an older way of doing business in the world’s biggest centre of international finance, where contacts were everything and your word was your bond. For one thing, Baron David has a razor-sharp financial mind, learnt at the feet of his father Baron Guy, who rebuilt the family’s business in France after World War II. Being Jews, much of the Rothschild businesses were destroyed during the war years. Baron David duplicated his father’s success after Rothschild was nationalised under the presidency of François Mitterrand in the 1980s, rebuilding the bank’s presence in France after Mitterrand’s influence waned. “I started with just 10 people at Rothschild in France, and now Rothschild & Cie Banque [part of the Rothschild Group] is a leading French advisory firm and investment bank.” That’s true, but the family also helped. As someone who knows the bank well, but wanted to remain anonymous, says: “The Rothschilds have always invested in one another.” Baron David’s cousin in Switzerland, Edmond de Rothschild, helped by providing finance in the new bank, taking a 10% stake in the process.

Few question Baron David’s financial acumen, but he has also shown considerable ability to manage a highly complicated family business with many potentially competing demands from members of the extended family. Family is important to the Rothschilds – incredibly important. It’s summed up by one of Baron David’s ancestors, James Rothschild, who said more than 150 years ago: “The family is everything: it is the only source of…happiness…it is our unity.”

After Baron David took over as executive chairman of Rothschild in 2003 from his cousin Sir Evelyn Robert de Rothschild, he helped in the process of bringing the French and the British sides of the bank together when the two firms merged to become Rothschild Group. The new group straddles many parts of the financial services industry, including investment banking, asset and wealth management, and private equity. Nevertheless, there are still separate parts of the Rothschild financial empire. Edmond de Rothschild Group was set up by Edmond de Rothschild in 1953 in Geneva (known then as LCF Rothschild Group). It is now run by Edmond’s son, Baron Benjamin de Rothschild.

Lord Jacob Rothschild, who left NM Rothschild, the London banking business now part of Rothschild Group, in the early 1980s, apparently after disagreeing with the direction being taken, set up RIT Capital Partners, now one of the biggest investment trusts in the UK. Interestingly, Edmond de Rothschild Group and RIT Capital came together in March to form a joint venture.

Now 69, some might feel that Baron David might be thinking of handing over to the next generation and taking life a bit easier. Maybe even spending more time at the family’s great wine châteaux (pictured left) in Bordeaux. Predictably, like so many family leaders, he says he’s not in any hurry. “As a very smart financier said to me over lunch when he was 86, ‘as every year goes by, I feel that I’m further away from retirement’, which is exactly what is happening to me.” The likes of other family business patriarchs such as Ferdinand Piëch, 74, chairman of Volkswagen, and 81-year-old Rupert Murdoch, chairman and chief executive of News Corporation, could easily utter these words.

His only son, Alexandre, who is 31, works for Rothschild in London. Unsurprisingly, Baron David won’t be drawn on whether his son will succeed him. He would only admit that his position in the bank will grow. “Alexandre’s likely to play a leading role in the firm.” What is for sure, the Rothschild family will handle succession in its own unique way. Despite the size of the business and the large number of seventh-generation members around, it’s unlikely the family will seek outside advice on how to manage the process.

Rothschild successions are like appointments of Popes – no one knows exactly how the final decision is taken,” says the insider. But there are a couple of factors that might influence the decision. The family is likely to give it a considerable amount of thought, at least a lot more thought than they did when Amschel Mayor James Rothschild was made chief executive of Rothschild Asset Management in 1993. He committed suicide three years later. Although the exact reason for his suicide will probably never be known, Amschel allegedly wasn’t a fan of high finance, preferring farming and racing vintage cars. Many who knew him say that the huge pressure on Amschel to uphold the family’s name at the bank was too much, driving him to take his own life.

The episode has made its mark on Baron David. “The best way of destroying the family business is putting pressure on the next generation to assume an important role within it,” he says. “It’s horrible to be in a position where you are very young and people tell you this is your destiny, there is no other choice, you can’t do anything else, and you have to be better than all the others.”

The other factor is that neither the executive chairman’s position, nor the chief executive role, or even senior positions at Rothschild Group, are likely to be held by a female member of the family. For much of the 19th century, the Rothschilds had a policy of excluding daughters and sons-in-law from partnerships to ensure the business stayed in the male bloodline. Although these restrictions have long been removed, none of the female members of the family have held a top position at the bank. Baron David downplays the anomaly.

“If you were to take from the origins of the family in business – from Frankfurt to today – and you were to benchmark the intellect of all the men and all the women within the family, I would assume the women would have come ahead of the men in terms of IQ,” he says. “So the idea that Rothschild men are smart and the women are not is clearly wrong.”

There’s no doubt there have been and are many prominent female Rothschilds, including Dame Miriam Louisa Rothschild, a prominent entomologist, Emma Georgina Rothschild, a Harvard professor, and Charlotte Henriette de Rothschild, an opera singer. But when he talks about succession none of his three daughters, two of them older than Alexandre, are mentioned. That said, he admits that women are thinly represented on the boards of the bank and holding companies, and adds: “It would be good, one day, to have a lady chairman of the Rothschild Group, but it is a completely level playing field, based on merit.”

If Rothschild women have been excluded from the bank either intentionally or unintentionally, non-family members look to have fared better. Two years ago, the Rothschild Group took the unprecedented decision to split the role of chief executive and chairman, appointing an outsider for the first time to the top of the bank’s management. Rothschild veteran Nigel Higgins got the chief executive job. Baron David said when Higgins was appointed that it was time to make a move, and that it was “natural and healthy”. Since then, Sir John Rose, former chief executive of Rolls-Royce, has been appointed deputy chairman of Rothschild Group. “He’s probably one of possibly three of those hugely qualified individuals who could become chairman of the institution if there is no Rothschild qualified,” says Baron David.

That may be the case, but Rothschild still wants its outsiders to accept the family’s ownership. “There is an informal partnership between a limited number of Rothschilds and the brilliant executives who have opted for the family-control model,” he adds.

Rothschild Group has also brought new shareholders into the business in recent years to gain access to new capital and economies. In 2003, Hong Kong-based Jardine Matheson Holdings, a family-controlled trading company, bought the 20% stake in Rothschild held by the insurance group Royal & Sun Alliance. The deal represented a good example of two family businesses helping each other. It’s unlikely, say those who know the bank, that Rothschild would have sold these shares to Goldman Sachs – outside strategic shareholders are chosen very carefully. Five years later, Rabobank of the Netherlands bought a 7.5% share in the group.

Although the family obviously very much controls the business, it’s sometimes difficult to know exactly how much it actually does own. The historian Paul Johnson once said: “The Rothschilds are elusive. There is no book about them that is both revealing and accurate.” What is for sure is that the Rothschilds will continue to control their businesses. That was further confirmed, if it needed to be, in April when the family moved to streamline the group under Paris Orléans, the Paris-based company that controls much of the family’s holdings.

Under the new structure, Paris Orléans will become a limited partnership that acts as a safeguard against takeover. The family will control 57% of the voting rights, regardless of the size of its economic stake – at around 48% after the reorganisation – in Paris Orléans. It is a similar structure recently set up by family-controlled Hermès, to ensure the family doesn’t lose control. The move has been driven by Baron David, who, as one insider said, is determined never again to give up family control, as he witnessed when the bank was nationalised by Mitterrand in 1982.

Nevertheless, it will be the performance of the bank that will ultimately determine the family’s control. The latest figures for Paris Orléans showed profits before tax of €121.9 million in the first half of the bank’s fiscal 2011/2012 year, up until the end of September, a fall of nearly 20% on the same figure a year ago. It is hoped the new structure will revitalise profits in the years ahead.

If there is one thing (and there are many) Rothschild could teach other family businesses, it is the importance of not believing in your own publicity. Rothschild is one of the few brands with lasting appeal in the world of finance, and indeed the world of business as a whole. But that’s no guarantee of success, as Baron David makes clear. “You have to reassess every year and ask whether we are good enough,” he says. “Some might think it’s chic being a Rothschild, but that lasts five minutes. The rest of the year, it’s not the chic of being a Rothschild but what we deliver.” Most family businesses would agree about the ‘what we deliver’ bit, but often struggle at delivering it over multiple generations.

That’s why many observers of the Rothschild phenomenon in the world of finance have often asked why it has been able to hold on to family ownership of the bank, when so many other families in finance have lost control. JP Morgan, Kleinwort Benson and Baring Brothers were all family-controlled, but are no longer. Part of the answer lies in what Baron David says about not being complacent. But it also lies in the fact that, despite the great wealth the Rothschilds generated, they never got too greedy. As the historian Niall Ferguson in his exhaustive history book of the family, The House of Rothschild, said: “By continuing to play safe, the Rothschilds were safe.” That ‘playing safe’ helped the bank to get through the financial crisis of 2008/2009 relatively unscathed.

What of the future? Given Baron David’s skills at cementing ties between the family, can he do it yet again with the parts of the family that work outside of the Rothschild Group and confirm his legacy as one of the great Rothschilds? It seems this step towards greater unity might be beyond his years, although it’s certainly on his mind.

“There is no plan at the moment, but we try to keep the best relationship possible. One day my son’s children who aren’t yet born and Benjamin’s children might decide that it is time to merge everything.” And what about the English side, Jacob and his son Nat Rothschild, who has built a successful career as a financier outside of the various financial holdings of the family? “I keep good relationships with the family in England. One, because they are talented and respectable people, two because they are valued shareholders in the group, and three because we believe in preserving options and relationships.”

It seems pointless to ask Baron David whether he thinks the family will control the bank in 20 years time. You know his answer would be yes, with maybe a few minor caveats. It’s kind of like asking the Queen of England whether or not the monarchy will be around in 20 years time. Some might ask the question knowing full well that the answer would be why would you think otherwise.

That’s not to say the Rothschild Group and the family are complacent – that’s obvious from much of Baron David’s comments during this interview. After all, this is a family business that has, most observers would agree, survived and flourished under considerable adversity, including widespread anti-Semitism, takeovers by hostile governments and numerous financial crises.

As Baron David says: “There is nothing fixed and the past is not necessarily a guarantee for the future.”

There is much in that missive that underpins the success of the business. Indeed, it might be Rothschild’s biggest guarantee of its future as one of the greatest family business dynasties for years to come.

The heirs apparent... and less apparent
Alexandre de Rothschild - The son
Whatever Alexandre’s role in the Rothschild Group will be after his father eventually steps down, it is likely to be senior. The 31-year-old works as a director in the merchant banking team at Rothschild and is involved in structuring and sourcing private equity deals. Many would say he is the most obvious successor – but the sons of family members controlling the bank don’t necessarily become the next head – as history shows. Alexandre has outside experience, gained at Argan Capital, Bank of America’s former European private equity division, and at the Wall Street investment bank Bear Stearns, now part of JP Morgan. He joined the family business back in 2008 and is viewed as a competent banker, if not a little uninspiring, according to insiders. But that might make him the obvious “safe pair of hands” to take the lead from his father when he reaches an age – accepted by his father and others – probably in his late 30s. Married and into various horse-related sports, for the most part Alexandre has remained away from the gossip columns – another benefit to succeed his father.

Benjamin de Rothschild - The cousin

The 48-year-old chairman of the Geneva-based Edmond de Rothschild Group, which is not part of the Rothschild Group, has done a pretty good job of growing and consolidating the business started by his father in the 1950s. The firm is involved in a host of advisory banking and asset management businesses. Arguably Edmond de Rothschild has been more successful than the Rothschild Group in the last few years, certainly in terms of collecting assets from the wealthy and institutional investors – it has assets under management of more than €100 billion. Baron Benjamin could be experienced as well as young enough to have the energy to bring the two groups together. Nevertheless, unity among the sixth generation of Rothschilds, of which Baron Benjamin and Baron David are from, is considered unlikely. Baron David says that’s probably a job for his and Baron Benjamin’s children, or even children’s children. But both of them come from the French side of the family and Baron Benjamin has recently orchestrated a joint venture with Jacob Rothschild’s RIT Capital Partners. Could he yet bring all the Rothschilds together?

Sir John Rose - The non-family member 

Brought in as deputy chairman by Baron David in 2011, Sir John, 59, is the former chief executive of one of the UK’s most successful companies, Rolls-Royce. Baron David says Sir John would be “among one of possibly only three of those hugely qualified individuals who could become chairman of the institution if there is no Rothschild qualified”. Sir John is a big advocate of businesses that are about long-term strategic planning. He said at the time of his appointment to the Rothschild board: “I wanted to join a group which thought long term and where I enjoy working with the people there, and this new challenge will fit this job description extremely well.” But, even if Sir John is elevated to the chairmanship at Rothschild, the family will still be very much in control through the various holding companies it owns and manages.

Nat Rothschild - The outsider
Very ambitious, Nat Rothschild, the only son of Jacob Rothschild, has made a name for himself as a deal maker, hedge fund manager and one of the world’s most eligible bachelors. Nat hasn’t decided to work within the extended family business empire, neither for the Rothschild Group, nor his father’s RIT Capital. Although some have been critical of his business acumen – most recently he was in the spotlight over his handling of the listing of an Indonesian mining company on the London Stock Exchange – no one would question his entrepreneurial zeal. Still young at only 40, Rothschild has many more deals in him. But he might need to concentrate on something a bit more consistent and permanent to impress those at the top of the Rothschild clan. His portrayal in the gossip columns and society pages of certain media might also harm his chances of any senior role within the main family businesses – that’s assuming that he wants such a position in the first place.

Ariane de Rothschild - The woman

A woman at the helm of the Rothschild Group might seem as unlikely as orthodox Jews allowing female rabbis, but if that possibility was to exist at the family business, Ariane de Rothschild might be a top candidate. The 47-year-old is married to Benjamin de Rothschild, which means that she’s not only got her gender working against her but she isn’t a Rothschild by blood. Nevertheless, she has proven herself as a formidable financier, with an MBA in finance and stints at Societe Generale and AIG as a currency dealer before joining her husband’s firm. Ariane has also been elected to the board of Edmond de Rothschild Holdings and is now vice chairwoman of the Geneva-based holding company.

Portraits of Baron David by Alessandra Catavero   

First published in CampdenFB, Issue 53