the big picture and details - bei PwC Schweiz

ceo*The magazine for decision makers. Sept. 2007

Swiss educational excellence: Why it’s smart to invest in brainpower.Argor-Heraeus: Where security and ethics are worth their weight in gold.Neighbourhood assistance: Why services sometimes come free.

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Publisher: PricewaterhouseCoopers AG ceo magazine, Birchstrasse 160, CH-8050 Zurich, Switzerland

Editors-in-chief: Alexander Fleischer, [email protected], Franziska Zydek, [email protected]

Creative director: Dario Benassa, [email protected]

Contributors of this issue:Michael Craig, Kaspar Meuli, Ella Sarelli, Giselle Weiss

Concept, editing and design: purpur ag, publishing and communication, zurich, [email protected]

Photos: cover: Stefan Walter, page 3: Andreas Teichmann, page 22: Eva-Maria Züllig, page 43: Marc Wetli

Lithography/Printing: Sticher Printing, Lucerne

Copyright: ceo magazine PricewaterhouseCoopers. The opinions and views expressed by the authors do not necessarily reflect those of the publisher.

ceo magazine appears three times a year in English, German and French. Circulation: 30,000

Free subscriptions and changes of address: [email protected]

ceo/editorial 03

All CEOs need to have an overview of whatis happening in their organisation and themarket in which it operates. And at thesame time they should have control overimportant details – not least because thelegislator requires the CEO to be respon-sible for these details. But how a CEO goesabout meeting these requirements is a veryindividual matter. In our Forum, four prom-inent figures from different fields give aninsight into how they achieve this delicatebalance. Again and again this ambiguity also playsan important role in our different lines ofservice. Tax is a good example. To avoidrisks, you have to know and understand therelevant laws and regulations in detail. Andfrom a business point of view, you have tokeep tax expenses to a minimum. At thesame time, however, a company mustn’tlose sight of either corporate considerationsor the larger social context. Taxes constitutethe basis of the economy, and companiesare expected as a matter of course to make

an appropriate contribution to funding thestate system. A company that is notperceived as a good corporate citizen risksincurring costs in the form of damage to itsreputation. As a leading tax advisorycompany, PricewaterhouseCoopers has aparticular obligation to show companiesways of meeting these – at times contradic-tory – requirements. Starting on page 27,Andrin Waldburger explains the significanceof the total tax contribution in this context.

Taking social responsibilityAnother article in this issue shows just howvulnerable the factor of reputation can makean organisation. Last year, Ticino-basedcompany Argor-Heraeus came under enor-mous pressure due to accusations relatingto gold suppliers in Africa. Since then, theaccusations have been withdrawn in theirentirety, and now the company is even moreacutely aware of all the issues relating tosocial responsibility that affect every singlelink in the supply chain. In a business that isalso very sensitive in environmental terms,Argor-Heraeus is an interesting example of how heavy industry is able to operatesuccessfully in Switzerland.

All CEOs need to have an overview of what ishappening in their organisation and the market inwhich it operates. And at the same time they should have control over important details – not leastbecause the legislator requires the CEO to be responsible for these details.

Dr Markus R. Neuhaus, CEO PricewaterhouseCoopers, Switzerland andEurofirms Senior Partner

Gold is for Argor-Heraeus what education isfor our organisation, and indeed for theentire Swiss economy. So deciding todevote part of this issue of ceo magazine toa dossier on Switzerland as a centre ofexcellence in education was a matter ofdeliberate self interest. Over the last fewmonths, PricewaterhouseCoopers hassigned agreements with four universities tofund professorships. We hope that thiscommitment, which could be described asa form of sponsorship, will bring direct andindirect benefits for our organisation. Butthis type of commitment will also undoubt-edly have benefits in terms of Swisscompetitiveness and the Swiss public inter-est, especially given that we have deliber-ately decided to support tertiary educationalestablishments based in different regions.

I wish you a stimulating read.

Markus R. Neuhaus

ceo2/07. contents

Matthias Remund, director of the FederalOffice of Sports, in the ceo* Forum: “Forme, keeping an overview is the most important thing of all in management.”

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Patrick De Maeseneire, CEO Barry Callebaut AG, in the ceo* Forum: “To seethe big picture, we first need to analyse the details.”

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Professor Dr Susan Gasser, director of theFriedrich Miescher Institute, in the ceo*Forum: “The job of a scientist is to makesense out of many small details.”

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Léonard Gianadda, founder of the PierreGianadda Foundation, in the ceo* Forum:“I am obsessed with details and like to haveeverything under my control.”

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pwc expertise

“Ulysses”, a PricewaterhouseCoopers leadership development programme. Using professional expertise in an unfamiliar environment, for example in India.

50

04 ceo/contents

Total tax contribution: Publication of thetotal tax burden – and not only of corpor-ate income taxes – can provide informa-tion about how much businesses reallycontribute to the overall performance ofthe economy..27Global mergers and acquisitions: With plenty of available capital in themarkets and the global economy strong,the mergers and acquisitions market isflourishing. Traditional deal barriers arefalling and global partnering is taking on a new face.

30Outsourcing: Outsourcing parts of thevalue chain involves considerable busi-ness risks, and must be planned andimplemented clearly and methodically.

32New salary certificate: The changeover tothe new certificate is not only a greatopportunity to review internal processesand structures, laying down clear rules oncompensation also increases transparencyand builds employee trust.

35Service: Events, publications and analyses.Subscriptions and addresses.

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Cover picture:Università della Svizzera Italiana (USI).

ceo/contents 05

Dossier. Education/Switzerland.Politicians say that education has a price when they increase the budget. But is this enough? The economy demands far-reaching reforms so that Switzerlanddoes not miss out on international opportunities. We evaluate the situation.

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Working without pay – that’s something thatgoes without saying for the active membersof Zurich Neighbourhood Assistance.

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Trend. Dialogue. Even good questionsbecome bad ones when they are asked toooften – says publicist Roger de Weck.

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Argor-Heraeus. More than 300 tonnes of gold worth CHF 8 billion are refined inTicino every year.

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We must concentrate on what really sets us apart, says Dr Hans-Ulrich Doerig, who advocates promoting a sense of theelite and an increase in tuition fees.

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forum1. the big picture/details

Matthias Remund: You need an overview to be able to think today about tomorrow andthe day after.

Matthias Remund is director of the FederalOffice of Sports (FOSPO) in Magglingen.

For me, keeping an overview is the mostimportant thing of all in management. As amanager, you need to address the pivotalissues, things that you must never losesight of. These involve the ongoing busi-ness. Primarily, however, it’s about thefuture. You need an overview to be able to think today about tomorrow and the day after. Sufficient time and energy arerequired to gain this overview. Otherwise,you lose sight of the risks and you missopportunities. In key strategic areas, however, you need tobe familiar with the important details to beable to ask the right questions. Ultimately,this applies at every level. You need to culti-vate the details that help you to best carryout your own task. Let me give you an example of how the gapbetween overview and detail is bridged inpromoting exercise for children. First, I havean overview of the current situation in Switzerland and abroad compiled for me.This gives me a general understanding.Then it’s all about analysing the latestresults from research. Based on this, wedefine the need for healthy exercise: Chil-dren should exercise for at least one hour aday! The obligatory three P.E. lessons are

not sufficient. With the help of specific infor-mation, I can not only call for daily exercisefor children but also substantiate its neces-sity in a credible manner.For young people between the ages of 10and 20, the FOSPO already offers theYouth+Sport programme, which is the bestprogramme in Swiss sports promotiontoday: 550,000 children and young peopleare learning first-hand that sport and exer-cise entail more than just training your body.Every hour of sport is also of benefit to mindand soul. Sport has a positive effect on aperson’s cognitive skills; it provides a valu-able contribution to integration and thedevelopment of social competences. If you play sports regularly, you boost yourresilience, stress resistance and perform-ance. Greater balance, motivation and ulti-mately a better quality of life are additionalpositive effects of sport and exercise.Today, there is no suitable offering foryounger children. Our solution is to reducethe age limit for Youth+Sport to five years.We are developing a specific programme ofintervention that offers multi-sport exerciseas part of voluntary sports at school and in clubs. A pilot project will now take placeon the topic of the Euro 2008 tournament. I hope that this major football event inSwitzerland leaves a legacy. This is the bestgift I could imagine for young people – andthe best investment in the future.To flesh out this vision and achieve thepolitical support for it, I need to be able toargue about the specifics as director of theFOSPO. I need to be able to substantiate

our applications and ideas as part of thepolitical discussion. My direct superior,Federal Counsellor Samuel Schmid, as wellas the Parliament rightly want to know howour vision is to be implemented and what itwill all cost. I need to be able to check thebusiness plan developed by my colleaguesand provide detailed information: Howmany children do we intend to reach? Howdo we design the training for the leaders?What form will the introduction take? Whathappens if the offering finds little support or if we are overrun with people interestedin it?If you want to retain an overview of theoverall picture as a manager, you need aloose rein. I have greatly restricted thegroup of employees who report to medirectly and thus introduced a participatoryand delegating style of management atFOSPO. I have seen generally that anobsession with details can be an obstacleto your personal development. If you don’tknow all the details, you haven’t always gota handful of arguments at your disposal whysomething is not possible and why innova-tion or change is not feasible. //

Photo: Noë Flum

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Patrick De Maeseneire: If you want to eat anelephant, cut it in pieces.

Patrick De Maeseneire, CEO, Barry Calle-baut AG. With annual sales of more thanCHF 4 billion, Zurich-based Barry Callebautis the world’s leading manufacturer of high-quality cocoa and chocolate products.Barry Callebaut is present in 24 countriesand employs approximately 8,000 people.

It’s 8 pm, the end of an intense meeting atwhich a major strategic move for thecompany was discussed – lots of openissues, and lots of opportunities. Thoughtsare whirling; it will take a while to winddown. Now is the time to take a step backand refocus.As the head of a global company it is myresponsibility to oversee the implementationof the group strategy. This means I need tohave an overview of the company’s busi-ness and its performance at all times. Everymajor decision taken by the managementneeds to be considered in light of how itaffects the business as a whole. To see thebig picture, we first need to analyse thedetails. We need to know what is happeningon the ground, at our regional headquarters,in our factories and in the cocoa-growingcountries, to draw the right conclusions ona group level.The phrase “think globally, act locally”applies to many international companies.For us, as the leading manufacturer of high-

quality cocoa and chocolate products, thismeans we analyse the local operations todefine a global strategy. To do this, my chief financial officer and Itravel to our European, American and Asianheadquarters every three months to take a closer look at our regional operations. We meet with the managers and do what we call the quarterly operational reviews.During these meetings we evaluate thebusiness performance in the differentregions and discuss how to improve theoperational set-up. It is important for us tosee our colleagues in their working environ-ment because this gives us a better feel for what is happening on the ground. Weget the chance to meet the teams, who aremuch closer to the customer than we are at head office. During the two to three daysthat we spend in each region we try to gointo as much detail as possible. We look atthe investments, the stocks and receivablesand the performance against budget. Wetalk to the people in the different depart-ments, including sales, marketing, financeand human resources. If we find flaws in thesystem we isolate the problem, investigateit and define the necessary actions. If aregion or business unit is particularlysuccessful, we analyse the reasons for thissuccess so that we can use the sameapproach in other regions and businessunits. It is a matter of reviewing regional oper-ations carefully and drawing the rightconclusions to optimise the business on a group level.

After the quarterly operational review, weshare the key outcomes with all our topmanagers at a management meeting. Wediscuss regional developments in a globalcontext to find the right procedures to opti-mise our operations. This enables themanagers to see their place in the overallsuccess of the company and to put forwardsuggestions that go beyond their own oper-ations. Their ability to add value increases ifthey have a big-picture mindset. It allowsthem to align their actions with the overallbusiness goals of the group. In a next step we condense the informationinto a summary for the Board of Directors.This process forces us to focus on theessentials to make and defend our recom-mendations. It also helps us to give conciseand accurate information to our sharehold-ers and the investment community. If some-one requests details, we can deliver. Resources are always limited, and withoutunderstanding the problems and opportun-ities, thus without going into detail, wewouldn’t be able to allocate them in themost appropriate way. You need to see thebig picture. But to arrive at it you need tofocus on the details. The motto being: if youwant to eat an elephant, cut it in pieces. //

Photo: Markus Bertschi

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Professor Dr Susan Gasser: If you allow too many details to creep in, they completelyconsume you until you have no visionanymore.

Susan Gasser is the first woman to lead theFriedrich Miescher Institute (FMI) in Basel.Prior to taking on the post, in 2005, she leda research group at the Swiss Cancer Insti-tute in Epalinges. Gasser was born in theUSA and came to Switzerland 27 years agoto do her PhD in biochemistry.

In terms of details and the big picture,science and business are surprisingly simi-lar. In running a big organisation, you haveto have an overall vision of where you wantto go. But in day-to-day operations, youthink about individuals: about talking to thisor that person, about this or that project. It’sthe same in science. The job of a scientist isto make sense out of many small detailsand facts. But the reason you collect all thatinformation in the first place is always toanswer a big question about how the worldworks.The goal of the Friedrich Miescher Instituteis to understand the workings of disease sothat others can develop drugs to fight thosediseases. We’re funded by the NovartisResearch Foundation specifically to carryout high-risk, exploratory research, in otherwords, creative research that other organ-isations and institutes have neither the timenor the money to do. We also serve as aneducation and training ground for youngscientists.Our priority is to make the FMI the best,most internationally competitive research

institute we can. And to make sure thatwhat we discover is useful to Novartis. Theway to do that is through scientific excel-lence. I usually describe the process at theFMI as one akin to controlled chaos: ideasgoing in all directions! That may soundcrazy, but it works. The alternative is tofocus all these smart, young minds on asingle problem. You might reach a goal thatway, but you won’t find out anything youdon’t already know.We want to find out things we don’t alreadyknow. So the kind of research we do isexploration in its purest sense. And how doyou manage that? Doing research is not justabout one person following a good idea. Itis a team effort, and often group leadersand scientists don’t know how to deal withpeople very well. The guiding I do as direc-tor often involves helping scientists toconnect and to get other people to accepttheir ideas. But I don’t try to direct the ideasthemselves.If you allow too many details to creep in,they completely consume you until youhave no vision anymore. So, for example, Idelegate routine handling of legal questions,human resources, building management,information technology and so on to myadministrative staff. We meet regularly totalk over problems. And I do insist on one-on-one interviews with all the laboratoryheads and managers once a year. I think it’s a mistake not to make time for peoplewho have responsibility for others. You can’t know every detail, but you do need a hierarchy of people you trust and whoknow that you count on them.Another example of something that requirespersonal attention is external relations.

I came to the FMI from academia. And oneof the biggest surprises was finding out howmuch of my time would be taken in dealing,for example, with nationwide research proj-ects, the universities, the Basel government,Novartis, networks. It’s not just sitting inmeetings but understanding what all theserelationships are. And understanding theposition of the FMI vis-à-vis these otherplayers.I think there’s a kind of tension betweendetails and the big picture, and maybethat’s good. I went into science because Iwanted to use something concrete, and lotsof details! But my interest in the details wasto understand big questions. And maybebecause I think about science that way,management is the same thing for me: it’sdetails, but it’s the big picture – the vision –that counts.When it comes down to it, I have a healthyrespect for details. But that doesn’t mean I want to micromanage the institute. Itmeans that I don’t forget it’s made up ofindividuals. People matter. If you focusexclusively on vision and you don’t ensurethat the infrastructure and people required –the fabric – are there, it won’t work. Youneed a vision, but that’s not the creativeside. That’s building the environment withinwhich creativity can happen. Creativity itselfyou can’t control. //

Photo: Andri Pol

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Léonard Gianadda: My meticulous style ofmanagement takes up a lot of time, but I don’tthink I get bogged down in details.

In 1978, Léonard Gianadda founded thePierre Gianadda Foundation in his hometown of Martigny, in memory of his brother.Today, the Foundation is one of Switzer-land’s most successful art institutes; crowdpleasers such as van Gogh, Rodin andAnker attract more than 350,000 visitorsevery year. Gianadda is a construction engineer by trade and made his fortune as a real-estate promoter.

I am obsessed with details and like to haveeverything under my control. That’s simplywhat I’m like, and there’s nothing anybodycan do about it – it’s a question of character.I deal with everything myself. This morning,for instance, I dictated the draft contract fora major endowment that a Zurich collectorintends to make to the Foundation. A fewhours later, we are now at the fifth version. Icorrect everything, down to the last comma.I dictate all my instructions on at least adozen dictaphones which have the namesof my secretaries, the accountant andothers on them, and these people each thencollect their cassettes from my office. I haven’t just developed this love of detailsince I’ve been active in the art world; I wasexactly the same during my time in the real-estate sector. Right from the start. Backthen, I founded an architect’s firm with afriend from my university days. Over theyears, we built more than 1,000 apartmentsin Martigny; in the 1970s when the town had

some 10,000 inhabitants, probably one infour lived in an apartment that we had built.I sold most of the properties, but I still ownaround 400 apartments that provide mewith a comfortable income. The meticulous style in which I manage mycompany and the Foundation takes up a lotof time, but I don’t think I get bogged downin details. I gain perspective when I’m on atrip. That’s when I always acquire thedistance I need from my work. All theimportant things that I have done in my lifehave always started on my travels. Somewhere on a train or in an aeroplane. Icompile a dossier on each of my trips – Imade 61 of them last year – and I file every-thing in it: from business cards to operatickets to restaurant bills. However, themost important thing is the detailed list ofwhat I talked to people about.With the exhibitions in the Foundation, Ifollow one rule: I only exhibit an artist if I canconvince a first-class curator to participate.If possible, the best in the world. And thatmeans of course that I have to hand overthe reins. The specialist takes on theresponsibility, decides on the selection ofworks, determines the exhibition conceptand ultimately hangs up the pictures. But Ialso appreciate it when I am involved andwhen we discuss the exhibition together. I am doomed to succeed with the Founda-tion. We have a budget at our disposal ofsome CHF 10 million a year, and subsidiescover a mere 2 per cent of this. I thereforehave to show artists that appeal to thepublic. But certain things I just do because Iwant to. For instance, we will be showing

Hans Erni in 2009 – he’s a friend, so we’regoing to exhibit his works. It’s as simple asthat.The Foundation does not have its owncollection, but I have my own private one. Istarted off buying pictures by artists that Iwanted to exhibit. This meant that I didn’thave to spend so much time on convincinga collector to lend me a work. That is prob-ably why my collection is rather disparate –but that’s no big deal. I don’t normally sell anything, but a few days ago I made an exception. I bought a Balthus – we areexhibiting this artist in 2008 to celebrate his 100th birthday. The drawing cost CHF 300,000. So I thought I would sellanother drawing. I bought it in 1999 for CHF 40,000; I have now sold it for CHF 230,000.Personal connections are vital when youwant to put together works for a collection.In return, however, you need to be able tolend out your own pictures too. The mostimportant qualities in fostering my networkof connections are courteousness, loyaltyand the ability to say “Thank you!”. I haveknown many important people personally inthe world’s major art institutes. The problemis that all these people have now retired.And, after all, I’m 72 myself. I haven’t gotthe energy to start all over again with theyoung ones. //

Photo: Julian Salinas

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dossier. education/switzerland

bildungsstandort schweiz /ceo 00

Utilising resources and investing in intelligence.Politicians say that education has a price when they increase the budget. But is this enough? The economy demands far-reaching reforms so that Switzerlanddoes not miss out on international opportunities. We evaluate the situation.


Texts: Corinne Amacher, Iris Kuhn-Spogat andFranziska ZydekPhotos: Stefan Walter

Every four years the federal governmentallocates the funds to be spent on educa-tion – and they increase them each time.For the period 2008–2011, the FederalCouncil wants to increase the budget foreducation, research and innovation by 6 percent per year. For the next four years, CHF21.2 billion should be available from thefederal government, which is 3.4 billionmore than for the period 2003–2007. This isa new record in the history of the SwissConfederation. “Education has a price,” as the minister ofthe Federal Department of EconomicAffairs, Doris Leuthard, is wont to say, andnobody would wish to contradict her. In theage of globalisation, education has becomethe basis of success par excellence, espe-cially in Switzerland, which has only onecommodity – intelligence. Only Iceland andSweden have produced more Nobel Prizewinners per head of the population. “Aca-demic excellence and competitiveness inthe area of research and innovation are theprerequisites for robust growth,” stressesthe Federal Council on the subject of the

budget for education, research and innova-tion. The federal state government nolonger talks about “education spending” but“investments in education”. The greatest beneficiaries of these invest-ments are the universities as well as the160,000 students at the ten cantonal univer-sities, two Swiss federal institutes of tech-nology and seven universities of appliedsciences, which have emerged from theamalgamation of around 70 technicalcolleges since 1997. These educationalinstitutions are not only contending forfinancial bounty from the confederation,they are also touting for international recog-nition. They are still battling well. In the leaguetable of universities, published by theShanghai Jiao Tong University, the SwissFederal Institute of Technology (ETH) Zurichranks as the 5th best university in continen-tal Europe, the University of Zurich is in 14thplace and the University of Basel in 25th

place. Worldwide, these three universitiesare ranked 27th, 58th and 81st. They areworlds apart from leading universities suchas Harvard and Stanford in the USA orOxford and Cambridge in Great Britain –and they are already in danger of beingovertaken by Eastern European andChinese universities. “The worldwide university market is growingat a rapid tempo. Although competition hasalways reigned in the scientific sector, theuniversities are now competing too. Theyare coming under pressure, because educa-tion and research are products which haveto be advertised on the market,” says Chris-tian Aeberli, co-author of a study on Swissuniversities, formerly an education expert atAvenir Suisse and now head of the elemen-tary school division at the Department ofEducation, Culture and Sport for the cantonof Aargau. Aeberli does not believe that the6 per cent increase in education spending issufficient to maintain the level of schooling.

A complex structure with unclear interfacesHow tough the competition has become isdemonstrated by the conflict between thetwo renowned universities, ETH Zurich andEPF Lausanne – a contest which escalatedat the end of May during the course of the election for the president of ETH Zurich. The self-assured head of EPFL, PatrickAebischer, who wants to make his universitythe top in the country, was able to securemore funds, relatively speaking, for 2008than his German-Swiss colleague. Not onlywas that an affront to the Zurich institution,but the dispute once again brought to lightthe complicated system of distributingfunds. This case is symptomatic of the Swisseducational system, which many reproachfor its lack of efficiency. “The Swiss educa-tion and research system still remains acomplex structure with many committees,commissions, working groups, etc., whichis characterised by unclear interfaces.Therefore the cost of coordination is alsovery high,” criticises the economiesuisseassociation. The high level of bureaucracywas evident in the planned reorganisation of the departments of the Federal Council.

Beneficiaries of the “education investments” promised by the federal government are primarily ten cantonaluniversities, two federal institutes of technology and seven universities of applied sciences.

ceo/education switzerland 17

+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + educationswitzerland

Contrary to advice from political theoristsand management experts to focus educa-tion in its own new department, the govern-ment did not succeed in rearranging theresponsibilities. The head of the FederalDepartment of Economic Affairs, DorisLeuthard, remains responsible for theuniversities of applied sciences, and theInterior Minister, Pascal Couchepin, for theuniversities.Six per cent increase in federal funds is only“a solid base” inasmuch as it is linked to“structural and organisational adjustments”.The PISA surveys carried out in the OECDcountries every four years show that a highdegree of input is no guarantee of an elevat-ed level of education. At 6.5 per cent of thegross domestic product (GDP), spending oneducation in Switzerland is clearly higherthan the average of 5.9 per cent for OECDcountries. However, educational policymakers are anxiously awaiting the next PISAtest. This time the study focuses on naturalscience, which is not a strength of Swissstudents.

More independence for the universitiesSome proposals for reform are headed inthe right direction, such as the formation ofthe universities of applied sciences (seepage 20), or the introduction of the bachelorand master levels in line with the so-calledBologna Process. By 2010, 45 countriesincluding Switzerland want to introduce thebachelor / master / doctorate model ofstudy, a system of comparable universitydegrees that will be easier to understand.Introduction of the system in Switzerlandhas been successful, and since the 2006/07winter term, more than 60 per cent ofstudents have passed through the new,staged courses of study. The ECTS Euro-pean credit point system was also intro-duced extensively, and this should facilitatemobility. This has long been insufficient for the econ-omy, however, and the economic sectordemands deeper and further-reachingreforms so that Switzerland will not miss outon international opportunities. This includes

greater independence for the universitiesand more competition among educationalinstitutions, as well as drastic improvementsfor students – more support, greaterscreening of students and higher fees.These requirements are set out in a 100-page reform paper on new approaches touniversity funding, advocated by Hans-Ulrich Doerig, vice-chairman of the board ofCredit Suisse and member of the board ofthe University of Zurich (see page 22).Each year more students file into the lecturetheatres. In order to achieve the idealsupport ratio of 40 students per lecturer,several hundred professors would have tobe recruited. With funds lacking, the optionof limiting student numbers is all thatremains. “A university can only assumeresponsibility for the success of studentsthat it has selected,” states the reformpaper for the Swiss economy. Some univer-sities have already started to assessstudents in order to control studentnumbers. The University of St. Gallen, forexample, selects foreign candidates on thebasis of an application file and an additionalexamination before the start of their studies(see page 18). ETH Zurich has put in placemeasures for Swiss as well as foreignstudents to reduce the high quota ofstudent dropouts in the first year – everythird newcomer was abandoning their stud-ies, resulting in annual costs of CHF 40million. The Academic and Career AdvisoryProgram (ACAP) briefs new students onwhat is expected from them in their studies.Candidates who wish to enrol in engineeringor physics courses must take part in aworkshop to test their suitability.

Tapping new sources of funding Elite universities such as Harvard andOxford have long recognised that the quali-ty of a university relies upon the quality ofits students. This is why they use methodsfor selecting their students. The foreignmodels show up something else – that thestate should not have to fund universitiessingle-handed. A student at a universitycosts the taxpayer CHF 50,000 per year,and at a university of applied sciences CHF30,000. Students in Switzerland only haveto pay 3 per cent of their fees themselves,whereas this is 66 per cent in the USA.

Increasing student fees is not politicallyviable; therefore, chancellors are trying to secure new sources of funding – forexample from endowments, companies and private resources. The University of St. Gallen is already procuring more thanhalf of its funds from non-state sources (see page 18). ETH Zurich has set up afoundation to gather private funds; however,after a brilliant start, the ETH Foundationcame under fire on account of its unclearstructures.Cooperation between universities, thepublic sector and private companies ismore promising: for example, Systems X, ajoint venture between ETH Zurich and theUniversities of Zurich and Basel, which isco-financed by the Basel pharmaceuticalsgroup Roche; or the SAP Lab at the Univer-sity of St. Gallen, which is financed by theSAP software multinational; or the SwissFinance Institute at the University of Zurich,which is run as a cooperative venturebetween Swiss banks, the Swiss stockexchange SWX, the Confederation anduniversities. In 1997, the business adminis-tration chair was the first in Switzerlandwhich was not funded by the state, sincethen sponsored professorships have prolif-erated. For example, the University of Baselalready has 20 externally financed profes-sorships and assistant professorships. Often it is established entrepreneurs whowant the new generation of academics toshare in their life’s work. Klaus-MichaelKühne, majority shareholder at the globallogistics group Kühne + Nagel, funds a chairfor international logistics management atETH Zurich to the tune of CHF 6 million overfour years. Under its “Sponsored Professorships”programme, PricewaterhouseCoopers is funding three professorships, providing full funding for one in Zurich and one inBasel, and partial funding for a third in St. Gallen. With this large-scale programme, PwC intends to strengthen collaboration between those working on the theoreticaland practical sides. //


The University of St. Gallen is seen as the top place in Switzerlandfor studying economics, law and social science. A fact underlinedby two seals of quality: EQUIS and AACSB, which distinguish busi-ness schools around the globe for their excellence. They are theentrance ticket for cooperation with the best international partneruniversities. The only other educational establishment in Switzer-land with these two seals of quality is the IMD in Lausanne.“In our faculties, we are seen as the leader in the German-speakingregion,” says Professor Dr Thomas Bieger, prorector in St. Gallen.“Our vision is also to be one of the leading universities in all ofEurope.” This ambition is dictated by current times. The educationmarket has become transparent and international, and competitionamong the educational establishments is tough. All of them wantthe best students and lecturers. They in turn only want to study or work at the best universities. That is why the University of St. Gallen is reviewing a fundamental issue: What needs to be doneto position a university among the best in the sector? A strategy,consisting of four supporting pillars, is on the table: promoting

University of St. Gallen (HSG):Competing in the globalmarketplace.How do you position yourself amongthe best in the world? By ensuring thatyou have an international profile. Andopting consistently for quality.

Professor Dr Thomas Bieger: “We are seen as the leader in the German-speaking region. Our vision is to be one of the leadinguniversities in all of Europe.”



entrepreneurship, intensifying research, broadening the interna-tional focus, and creating top products and services for lifelonglearning.St. Gallen is known for collaborating closely with business. Thecourses are deliberately practice oriented; during the recruitment ofstudents, attention is paid to attracting young people with entre-preneurial flair. The HSG itself is shaped by entrepreneurship. Thetotal of 40 institutes, research departments and centres are organ-ised as autonomous units and financed to a large extent by fundsthat they generate themselves. This income accounts for more than50 per cent of the annual budget of CHF 150 million. The focus inthe future will continue to be on promoting entrepreneurship. It will,however, be supplemented by additional focal areas.“Traditionally, the focus has been on application-orientedresearch,” says prorector Bieger. “Now it is more and more aboutimplementing the knowledge acquired through good industrialcontracts by contributing to basic research – the HSG wants to beperceived as a research location that is shaped by relevance andstringency.” The reason behind this commitment is that competi-tion is increasingly playing a part in research. One consequence isthat research results not only need to be relevant for practicalimplementation but also noted internationally. In future, the HSGwill increasingly have to publish research results in high-level inter-national periodicals so that it becomes more visible outside of theGerman-speaking region. Furthermore, the aim is to achieve lead-ership in specific subjects through centres and focal topics inresearch – and this might involve cross-institutional cooperation.

Great importance is attached to internationalityIn general, the St. Gallen management team wants more interna-tionality on the campus. Non-Swiss citizens have to pass a specialacceptance test for studying at the HSG; this does not apply forSwiss citizens. The university is interested in brilliant foreignstudents that raise the standard and can act as a stimulus. “Thefirst year of study is selective in nature,” confirms prorectorThomas Dyllick, whose responsibilities include quality developmentat the HSG. The university management is particularly interested innon-German-speaking students. Students are wooed in Singapore,China and Latin America using local hubs. The aim of this diversitymanagement is not only the optimisation of quality but also aninternationally defined, bilingual campus. This also involves recruit-ing more first-class professors from around the world. The universi-ty is extremely attractive – the culture on the campus is charac-terised more by cooperation than by rivalry, for the clear practicalorientation of the institutions and the proximity to business meansthat there is sufficient scope for entrepreneurial activity.The University of St. Gallen is a partner of 120 universities world-wide. This basis is to be used more extensively for the exchange ofvisiting professors and students. In addition to the traditionalexchange of more than 300 students, a semester programme for a30-strong group of students at Singapore Management Universityhas been ongoing for three years. In turn, a group from this univer-sity comes to the HSG in the spring. The university’s presence atinternational education fairs is also part of the HSG’s forward-look-ing strategy. Already today, two out of ten master’s programmes can be takenentirely in English. From 2008 onwards, that figure will rise to four.Talented students also have the opportunity to acquire doubledegrees at the master’s level – with Singapore and four top Euro-pean business schools. At the bachelor’s level, only some coursesare taught in English. The HSG does not want to convert entirely to English. “Students who can’t speak German and come to St. Gallen to study undoubtedly want to learn German and under-stand the local culture. We stand by our regional and culturalroots,” says Thomas Bieger.As a clear supplement to its training courses, the HSG is intendingto expand its first-class continuing education programme. Prorec-tors Bieger and Dyllick emphasise that today, lifelong learning isvital for management personnel. With 16,000 members, the HSGhas one of the most extensive alumni networks in Europe, includinga large percentage of the current managers in Switzerland. One ofthe aims of the continuing education programme is to make thiselite fit for the global market. It is a commitment that also pays offfinancially: the alumni financed the expansion of the continuingeducation centre to the tune of CHF 10 million. //

In St. Gallen, students can complete two out of ten master programmes inEnglish and acquire double degrees at the master’s level.


In the space of a decade, the universities of applied sciences havemanaged to establish themselves as the third pillar of the educa-tional system alongside the universities and federal institutes oftechnology. The seven cantonal and intercantonal universities ofapplied sciences that have been created through the merger ofnumerous technical colleges offer what students and employerswant: instead of colloquiums held in ivory towers, contemporary,compact courses from architecture to business administration,design management, information technology and life sciences tomicroelectronics and telecommunications. The success is backedup by the figures. Since the universities of applied sciences openedtheir doors in 1997, their number of students has risen tenfold from5,000 to 50,000.The education route via apprenticeship, vocational qualificationand university of applied sciences is proving to be a genuine alter-native to grammar school, A-levels and university. In small classes,support is more personal than at a university, where at timeshundreds of students are crammed into lecture halls. The coursesare aligned with the requirements of the everyday professionalworld. The University of Applied Sciences of Eastern Switzerland,

The universities of applied sciences:Practice-oriented and heading for expansion.They’ve barely established themselvesin the educational system, yet anotherwave of modernisation is on the hori-zon: A “landscape of universities ofapplied sciences” is to be created inSwitzerland. An ambitious project withpotential for success.

Professor Dr Markus Hodel: “Universities of applied sciences make an important contribution to promoting innovation andthe transfer of know-how.”


A degree from a university of applied sciences promises good jobopportunities. According to a study by the umbrella association ofgraduates from universities of applied sciences, 96 per cent of allstudents found a position in their choice of profession within twelvemonths of gaining their degree. Starting salaries are between CHF5,500 and 7,500 a month. In the subjects business administrationand architecture, where direct comparison between a university ofapplied sciences and a university and federal institute of technolo-gy is possible, a degree from a university of applied sciences is “atleast the equivalent to that from a university or institute of technol-ogy,” according to Monika Pätzmann, head of the rectorate staff ofthe Pedagogical University in Berne and author of a dissertation onthe topic. This study shows that if you have completed a degree ata university of applied sciences in architecture or business admin-istration, the practical relevance means that you have a slightadvantage in the labour market over university graduates.

Ambitious goals for the futureThe universities of applied sciences have barely established them-selves in the educational system, yet another wave of modernisa-tion is on the horizon. “A landscape of universities of appliedsciences is emerging out of the conglomerate of different schools,”says Markus Hodel, director of the University of Applied Sciencesof Central Switzerland, which will operate from autumn onwardsunder the international brand “Hochschule Luzern – LucerneUniversity of Applied Sciences and Arts”. The universities ofapplied sciences, some of which are spread over several sites andcantons, along with their 60 subschools, are to be run more effi-ciently and collaborate more. In addition to the existing bachelorqualifications, they will also offer a limited number of master studyprogrammes from the 2008 academic year onwards. Furthermore,the application-oriented research is to be expanded. All this willdrive up the number of students again – and will require money.According to the “Masterplan 2008–2011”, which lists the financialrequirements for the next four years, the universities of appliedsciences will require CHF 8.2 billion from the federal governmentand the cantons for operating costs, room costs and buildinginvestments. Whether the money required materialises will bedecided by parliament in September when the budget for educa-tion and research for the next four years is debated.This amount includes building investments of more than CHF 600million that are intended to ensure a self-assured presence for theuniversities of applied sciences. To the north of St. Gallen station,the University of Applied Sciences of Eastern Switzerland is plan-ning to build a new multi-storey building that will offer space for2,000 students. On a new campus next to Brugg station, theUniversity of Applied Sciences of North-Western Switzerland isplanning construction of a new training centre that, in addition tothe headquarters of the university, will incorporate the technology,pedagogy and economics faculties. On the premises covering42,000 square metres, 4,000 training places and 1,000 workplacesare to be created. Adjoining the new campus, Kabelwerke BruggAG will be constructing a new factory hall and an office and servicebuilding. The construction projects are an indication of how train-ing, research and work can grow together at the workplace. //

for example, runs an international class in the business administra-tion course in which the language of instruction is primarily English.Students spend part of the course abroad at a partner university inEurope, the USA, Russia or China, and collaborate with industry oninternational projects.

Focus on practical applicationsA degree course at a university of applied sciences is tightly organ-ised; practical projects, workshop and laboratory instruction, casestudies and project work ensure it fits the needs of the workplace.“Universities of applied sciences make an important contribution topromoting innovation and the transfer of know-how,” says Profes-sor Dr Markus Hodel, head of the University of Applied Sciences ofCentral Switzerland and president of the Rectors’ Conference ofthe Swiss Universities of Applied Sciences. Unlike the conventionaluniversities, the focus at the universities of applied sciences is noton the search for knowledge. Instead, more recent insights are tobe used for practical applications. For example, the Haute EcoleArc in the Neuchâtel–Berne–Jura region fosters a close exchangewith the watchmaking industry and carries out research in a projectrelating to the lubrication of springs in watchcasings which isimportant for the precision of a watch. The Institute for Engineeringand Architecture (HTA), which is part of the University of AppliedSciences of Central Switzerland, founded the Sun Center of Excel-lence with the software corporation Sun Microsystems. After theUniversity of Berne and the Swiss Federal Institute of TechnologyZurich (ETHZ), this is the third partnership of this kind for Sun inSwitzerland.


The seven cantonal and intercantonal universities of applied sciences offer whatstudents and employers want: contemporary, compact and practice-orienteddegree courses.


Mr Doerig, what do you think of Switzerland as an education and traininglocation?Hans-Ulrich Doerig: The more I consider thesubject, the more I appreciate the flexibilityof our dual system of education and train-ing. I believe it is the best system withregard to equal opportunities, and that weshould stand by it, since it is even the envyof other countries. Admittedly, we do notfare very well in the OECD statistics in termsof the proportion of graduates in the generalpopulation, and it has long been apparent

to me that gaining a university degree is noguarantee of success and happiness. At thesame time I find that too few Swiss nation-als are entering the tertiary sector. As amember of the board of the University ofZurich, I am involved with the appointmentof staff at the universities and see that over-all only few Swiss candidates can or doapply.

What is the reason for this?This surely has to do with the fact that wehave a whole range of very successful largeand medium-sized consortia in the countrywhich are able to offer attractive posts toacademics interested in research and analy-sis. The universities must make improve-ments in this respect, particularly amonglecturers or academics who are aspiring toprofessorships. Nowadays, due to theworkload, this would demand a high degreeof idealism and enthusiasm.

Do you believe that the Bologna Processhas been beneficial or detrimental? It has changed the world of the universities.I was sceptical prior to its introduction andthought it would mean considerable restric-tions for students in the tertiary sector. Ihave since arrived at a different view of it –the Bologna Process has led to a certaindegree of “disciplining”, but it has also ledto restructuring and greater choice in manymodules. I believe that this is extremelypositive, because the absence of disciplineand focus leads to a lack of employmentopportunities. The Bologna Process hasresulted in a further increase in lecturers’

“Excellence is essential in a countrysuch as Switzerland.”We must concentrate on what really sets us apart,says Dr Hans-Ulrich Doerig, who advocates promot-ing a sense of the elite and an increase in tuition fees.

Dr Hans-Ulrich Doerig, 67, studied economics at theUniversity of St. Gallen. After promotion and fiveyears working for J.P. Morgan in New York, in 1973he began his career at the Credit Suisse Group andhas been active in its senior management bodiessince 1982. Since 1993 he has been full-time vice-chairman of the board and chairman of the RiskCommittee. Doerig was visiting lecturer at theUniversity of Zurich for ten years. He is active in thesupervisory bodies of several business, science andarts organisations and foundations, as well as beinga member of the board of the University of Zurich.



workloads due to more examinations. Aprofessorship is no longer synonymous withunbounded freedom and time to undertakeresearch. A relatively new factor today isthat performance is also measured andevaluated, and this presents a challenge forthose involved. The reputation of a universi-ty now plays an increasingly important partin the worldwide competition betweeneducation locations, and the reputation of auniversity is inextricably linked to the repu-tation of its professors.

What is the reputation of Swiss universi-ties abroad?Switzerland has always been very appealingto foreign students, and we have the largestoverseas quota here. Foreign professors arealso attracted to Switzerland – the Universi-ty of Zurich has a staff of around 40 percent non-Swiss, and ETH has 50 per cent.The compactness of Switzerland, its loca-tion, its quality of life and the high andsometimes outstanding quality of oureducational institutions are the most im-portant factors.

Where does Switzerland falter in interna-tional comparisons? Lecturing in English is still insufficient toattract more students and professors fromnon-German-speaking countries. TodayEnglish is of great importance, and thosewho do not speak the language have feweropportunities in the employment market.This being the case, more lecturing shouldbe done in English.

What else needs to happen so that we donot miss opportunities?We need to concentrate on where we canreally improve. One of my principles is –increase the strengths and eliminate theweaknesses. Excellence is essential in acountry with a high cost of living such asSwitzerland. Excellence helps to set youapart. Nevertheless, excellence has hithertobeen somewhat neglected, and I am infavour of promoting it. Someone who istalented should be treated differently fromthe norm. Another point is that lecturing

should be upgraded, as it tends to beaccorded less importance than research.After all, nobody is awarded the Nobel Prizejust for being a good lecturer. The universityheads are aware of the problem, and CreditSuisse is encouraging action by setting upthe Credit Suisse Best Teaching Award forall universities. The lecturer-to-studentratios are also a weak point in our tertiarysector – and we cannot truly compete invarious disciplines, particularly in compari-son with the USA. If tuition fees were to beraised to CHF 5,000 per year – concurrentwith appropriate social funding – this wouldimprove the lecturer-to-student ratio quali-tatively and quantitatively by 20 per centand inspire more researchers.

You postulate this along with others in areport on new approaches to universityfunding which was published in 2004.What has been the result of this? I have discussed the ideas with federal andnational counsellors and numerous repre-sentatives of the educational sector, butnobody wants to raise the subject in anelection year.

The elections will be over by the autumn.Will anything happen after that? I think that the situation will have to worsenbefore improvements can be made. Assum-ing there are further budget cutbacks andfunds become even scarcer, the subject ofincreasing tuition fees can be reintroduced.Assuming that student numbers increaseand lecturer-to-student ratios become evenlower, this will lead to complaints in thecontext of the Bologna Process too, whichstresses the importance of adequate teach-ing support for students. Assuming that theup-and-coming countries maintain theirtempo, they will quickly catch up and auto-matically overtake those that are stationary,and other industrialised countries willbecome more competitive too.

How do you assess the current discus-sions about Switzerland? In the context of the current discussions onthe strategic future of Switzerland, I havedoubts about whether our country’s nationalspending budget is distributed proportion-ately. I am somewhat satisfied that educa-tional spending in the tertiary sector will not

be reduced, but government spending onresearch is approximately the same as thatfor asylum seekers, and total public sectorspending shows 37 per cent being allocatedto health, social services and invalidityinsurance, and only 4.7 per cent to theuniversities. I do not wish to be politicallyincorrect but I wonder whether such ratiosreally support our strategic sustainability.We know that as a country with a high costof living, Switzerland can only survive if itdemonstrates excellence and innovation;therefore my credo is that we shouldcertainly not fail to invest in the area ofeducation.

What do you think of procuring funds viarelationships between companies anduniversities, such as the collaborationbetween Pfizer and the University ofZurich, which was finalised in May?This will happen more and more becauseexternal funds are becoming increasinglyimportant. At the University of Zurich, thisprovides us with about CHF 100 million peryear. There are certain types of researchthat we would be unable to conduct at allwithout external funds. The criticism issometimes levelled that business will havetoo much influence, but this is largelyunfounded. Every company director knowsthe meaning of academic freedom andrespects this too. It would be helpful if wecould develop a somewhat less guardedattitude towards external funds.

As a banker, why are you so stronglycommitted to Switzerland as an educa-tion and training location?I am proud to be Swiss as we enjoy a greatdeal of respect and a very good reputation,particularly abroad. I identify with my coun-try – and education is probably the mostimportant resource. We all have opportun-ities to distinguish ourselves, and I amperplexed when we do not seize them,hence my commitment. //


The Università della Svizzera Italiana, USI for short, is a younguniversity. It was founded in 1996 – and enthusiasm for the neweducational facility was minimal at the time. “Is that really neces-sary?” whispered numerous sceptics, pointing to the educationallandscape in Switzerland. Nine universities and two federal insti-tutes of technology for just under seven million inhabitants seemedto be more than enough. Eleven years later, the existence of the country’s tenth university isno longer under discussion. Quite the opposite in fact – the way inwhich the USI is organised and managed is seen as utterly exem-plary. For example, the USI receives term fees of CHF 2,000 (CHF4,000 for non-Swiss students) – fees that the heads of other highereducational institutions can only dream about. Moreover, unbur-dened by the traditions of the 19th century, the USI has been ableto adopt a modern structure. It is managed by just one body, the12-member university council. It consists of ex officio members,such as the Ticino minister of education and the faculty deans, aswell as externals, primarily professors from other universities. Theuniversity council makes all decisions autonomously and is inde-

Università della Svizzera Italiana (USI): Small, young and in stepwith today’s requirements.Unburdened by tradition, the USI hasbeen able to adopt a modern structure,develop new ideas and react to trends.Now the university in Ticino wants toinvest in research.

Professor Dr Piero Martinoli: “If the USI wants to grow further, it needs its own identity and, where possible, a peerless range of services.”


Research is a new focal areaA university needs to teach, but it also needs to carry out research.If the university’s lectures are good, then it will attract goodstudents. If the research has a good reputation, it will attractrenowned professors. In the first ten years of the USI, the focuswas on the development of the courses. Now, it’s the turn ofresearch. Martinoli, a former physics professor at the University of Neuchâtel, intends to help it achieve a breakthrough in the fiveyears of his term of office (2006–2011). Results are required for this – they can be published, and scientific publications lend credi-bility to a university. They are a pivotal factor in the competitionbetween universities, but also essential for exchange and partner-ships with other universities.Research at the USI was given impetus with the introduction of theprogramme in informatics. In 2004, submitted research projectsbrought the USI just under CHF 3.5 million; in 2006, that figure wasalready CHF 6 million. Furthermore, the USI maintains closecontacts with the financial world, in particular locally. The Luganobanks finance some professorships and also award researchmandates to the financial scientists at the USI. The financial insti-tute has also already received substantial acclaim outside of Ticino:it belongs to the national Center of Competence in Research(NCCR) FinRisk, and is a founding member of the Swiss FinanceInstitute, a joint venture of Swiss banks and universities. It fostersclose relationships to the federal institutes of technology in Zurichand Lausanne (for instance in the fields of town planning andsupercomputing) and to other national and international universi-ties. Such academic alliances are important for a young universitybut are not easy to forge. It speaks for the quality of the USI that ithas managed to do this. To initiate the next stage in research, the USI needs more of its ownprofessors. Currently, 54 professors and 181 lecturers are on thepayroll. In the interest of a lean and cost-effective structure, theTicino university started teaching primarily with visiting professors.They come from different universities in northern Italy, from thePolitecnico in Milan and from Swiss universities, and compete formini-workloads. The problem is that “if you only work 20 per centof your time for us, you’re not motivated to write and submit aresearch application,” says Martinoli. “We therefore need peoplewho are here 100 per cent of the time.” Nowadays, when themandate of a lecturer expires, the position is advertised publiclyand internationally. With some success: the university received 273applications from all over the world for the last three professorvacancies. According to Martinoli, there are various reasons for thepopularity of a professorship in Lugano: high quality of life, interest-ing projects, good working conditions and the opportunity to takeon a challenge. The USI is a small university and will probably remain so. In thenational and international competition between educational institu-tions, it intends to beat the rest with its quality. If this strategy isconsistently pursued, the Ticino university may perhaps make itinto the sought-after list of the 300 best universities in the world.“That’s a dream of ours,” says Martinoli, “and we have a long wayto go.” //

pendent in its planning and in its finances. There is considerableorganisational freedom, and quick decisions are the order of theday. It was clear to the founding fathers of the USI that their universityonly had a chance if it had the courage to develop and implementnew ideas as well. The Faculty of Communication Sciences has itsroots in this philosophy. Ticino thus has a faculty that nobody elsein the country has. The USI also started with two other faculties,namely economics and architecture. There is a tradition of architec-ture in the region, and with economics, the USI has built a bridge tothe financial centre of Lugano. The offer has been well received, particularly in Ticino and northernItaly. Student numbers are constantly on the rise. In 1996, 326students were enrolled; today that figure is 2,200. By the year2011, it will be 2,500, according to the president of the USI, Profes-sor Dr Piero Martinoli. To keep pace with this growth, a fourth facul-ty was founded in 2004, a fifth is planned. Martinoli: “If the USIwants to grow further, it needs its own identity and, where possible,a peerless range of services.” And more courses in English –although Lugano has the highest percentage of foreigners (50 percent) in Switzerland, the non-Swiss primarily come from Italy andGermany. There are only a few students from the German- andFrench-speaking regions of Switzerland, due to the competitionthere and the language barrier. They are now working to changethat in Lugano. From the bachelor level upwards, English is becom-ing the most important language of instruction in informatics.

Although it was only founded eleven years ago, the university in the Italian-speaking region of Switzerland has since gained a reputation for its modernstructures and the services it offers.


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ceo2/07. pwc expertise

Total tax contribution: Businesses have to pay not only corporate income taxes. Page 27

Global mergers and acquisitions: A huge cultural challenge. Page 30

Outsourcing: Recipe for success, or risky bet? Page 32

When the customer demands outsourcing: “Our experience has been positive.” Page 33

New salary certificate: An opportunity to enhance corporate governance. Page 35

Service: Events, publications and analyses. Page 37

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The public increasingly expects businessesto behave as “good corporate citizens”.Large, mainly stock-exchange-listedcompanies, are criticised time and again fornot being “good taxpayers”. Media and thegeneral public suspect tax evasion, andeven the governments of some statesexpress doubt as to whether certaincompanies make a fair contribution to thepublic finances. In some European coun-tries, for example Germany or the UK, suchcriticism is heard almost daily, and even inSwitzerland corporate tax policy attracts theattention of the media from time to time.Such reports as a rule relate the corporateincome taxes paid by a company in itshome territory to its global net profit. Theinformation is taken from the financial state-ments. The conclusion derived from suchcompari-sons is: businesses pay much lesstax than one would expect from the profitsthey earn. But these comparisons are

methodologically unsound: firstly theyconsider only corporate income taxes, andsecondly they ignore the fact that compa-nies with international operations pay taxeswherever they operate.

In a crossfire of expectationsFiscal law is a complicated subject that isnot easy to comprehend. In a survey of taxmanagers of major companies carried outby PricewaterhouseCoopers in the UK twoyears ago, 99 per cent of those surveyedwere convinced that investors, employeesand other stakeholders lack adequateunderstanding of the economic contributionthe company makes by paying taxes andduties.No company can be satisfied if it issuspected of tax evasion, let alone taxfraud. Precisely in a social environment thatcalls upon businesses to behave as “goodcitizens”, this would involve a significantloss of reputation. Businesses actually findthemselves in a crossfire of expectations.Taxes are costs, and it is management’sresponsibility to reduce costs as far aspossible. This is what investors and finan-cial markets expect. Cost efficiency is,however – at least to a certain degree – also

necessary in order to strengthen competi-tiveness.On the other side stand the expectations ofthe state and of society. The state demandsstrict observance of the laws, which,however, deliberately leave room formanoeuvre and free decision taking. Butsociety expects more than the observationof rules: it requires a “fair” or “just” contri-bution by businesses and thereby implies inmost cases the idea of a redistribution. Inthis crossfire, entrepreneurial tax policy ismore than a financial or operational matter;it has become a corporate governancequestion.

Conscious management of the tax risksMost companies are aware of this and takethe management of tax risks very seriously.Tax risk management is an important andintegral element of company-wide riskmanagement. Above all in those questionsin which the legislative leaves room forinterpretation, the risks must be analysed

Tax RisksReputationCorporateGovernance

Andrin Waldburger, Leader Tax & Legal Services

Total tax contribution: Businesses have to paynot only corporate income taxes.The social and economic responsibility of business is expressed ultimately in the taxes and other duties they pay to the government. Publication of the total taxburden – and not only of corporate income taxes – can provide information about how much businesses really contribute to the overall performance of theeconomy.

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If one wants to calculate the total taxcharge, the first question that arises is whatare taxes. The answer to that question ismore difficult than appears at first glance. Ageneral definition could be: taxes are impo-sitions that a person or a company has topay to the public purse in order to financethe state’s tasks. A wider definition includesthe social security contributions thatcompanies pay on the wages of theiremployees. Precisely in internationalcomparisons, ancillary wage costs cannotbe ignored.

About 43% income taxes

About 28%consumption taxes

About 4%asset taxes

About 11%profits taxes

About 14% other1

Switzerland 2005: Analysis of total revenues (Federation, cantons and communities) by types of tax.

Looked at theoretically, corporate taxes canbe divided into two categories: those direct-ly related to operational activities and bornedirectly by the company, and those that thecompany settles, but which are not borneby the company itself, but in whole or partby customers and employees. Examples ofthese are value added tax or source tax.These types of tax are covered in the frame-work only to the extent that they are aneffective charge on the company. However,management of the other taxes involvesadministrative costs, which could easily becaptured. But the administrative costs ofthe direct and indirect taxes involve signifi-

cant definition difficulties, because theyaffect various corporate functions: in addi-tion to the tax department, for example, theaccounting, wages and purchasing depart-ments also deal with tax matters.A company’s total contribution to the stateis complete only when another aspect isconsidered: by creating employment,companies make an indirect contribution totheir employees paying income taxes andas consumers VAT. A glance at the distribu-

How can the total tax charge be captured?


seriously and systematically and the bene-fits of less tax weighed up.Tax risk management is directed towardsthe observance of laws and rules (compli-ance). The demands of some interestedparties, however, extend beyond compli-ance. To counter the pressure of theirexpectations, companies could publishvoluntarily what they pay in taxes and dutiesin total. The publicity of the complete taxand duty burden provides businesses withthe opportunity to communicate their realcontribution to the economies in which theyoperate.PricewaterhouseCoopers has developed amodel in which all types of tax for which acompany is liable can be illustrated: theTotal Tax Contribution Framework. For international companies with operationsin numerous countries – in addition to thetypes of taxes – the various national legisla-tions play a decisive role; precisely in inter-national comparisons the tax charge canvary significantly. The model therefore hasto be robust enough that it can beemployed to calculate all taxes that acompany pays worldwide. In the course ofglobalisation more and more companies,and not only major groups, generate asubstantial part of their value creation notonly in their home market, but outside theirborders. In principle, taxes are due wherevalue is created. While in the context ofintercompany transfer pricing a certainamount of shifting is possible, it involvesstrict rules and extensive documentation.Disclosure of all tax and duty charges is notonly a way to escape the crossfire of expec-tations, but also provides the company itselfwith information about its total tax and dutyburden. This knowledge is again the pre-condition for professional tax planning andcomprehensive tax risk management.

SummaryBusinesses stand in a crossfire of expectations: on the one handthey must minimise their tax costs within the legal framework to safeguard the interests ofinvestors and financial markets.On the other the general publicexpects that the economy willbenefit from taxes on companies’profits. Publication of the total taxburden, the total tax contribution,creates clarity about what taxescompanies pay wherever they add value. Businesses themselvesshould take advantage of theopportunity to set out and explainto their stakeholders their totalcontribution to the community. TheTotal Tax Contribution Frameworkprovides a flexible model for thispurpose. It enables not only adifferentiated overview of the typesof taxes, but also a breakdown of the tax burden over all the coun-tries in which the company is liable for taxes. Suitable vehiclesfor disclosure are either the annualreport or a separate corporateresponsibility report.

1Capital taxesProperty taxesWithholding taxesCapital gains taxes Capital transfer taxes Inheritance/Gift taxesExcise taxes

tion of the tax revenue shows that preciselythis indirect contribution by companies is a very significant economic factor. InSwitzerland income tax accounts forapprox. 43 per cent of the aggregate taxrevenue of the public purse. The FederalFinance Department does not distinguishbetween individuals and legal entities. Butthis relationship is clear from the communaltaxes: the proportion paid by individuals tocommunities within canton Zurich (incomeand net assets taxes) is on average 73.7 percent, by legal entities 20.6 per cent. Thebalance comes from other sources, such asinheritance or motor vehicle taxes.


[email protected]

International mergers and acquisitions(M&A) activity reached record levels nearUSD 2.16 trillion in 2006 and is on track toeasily exceed that level in 2007. Corpora-tions and private equity buyers are lured tothe bargaining table by the abundance oflow-cost deal funding in the form of bothdebt and equity financing. Private equityfunds have been able to raise large sums ina very short period. The result: deal pricesare near their highest levels in years.In the current environment you are fallingbehind if you are not in the mergers andacquisitions game. Strategic buyers arecompeting fiercely to acquire available busi-nesses in order to lead their industries andbeat out the competition. Private equityinvestors are buying some of the largestcompanies ever and becoming conglomer-ates themselves. When the excitement ends and the dustsettles companies may find themselvesoverextended or having taken on too muchdebt and, as always, the message of “buyerbeware’’ looms large as buyers are wary ofthe risks of doing deals at the pace and ofthe size currently in the market. However,

the draw of global platforms and marketchanging M&A appear to be stronger anddeeper than ever before.

Emerging market companies investingabroad It’s not just the volume of international M&Aactivity that is striking; the nature of themarket has also changed. While it used tobe restricted to Western companies invest-ing in the emerging markets, we are current-ly seeing companies in the emergingmarkets investing abroad and acquiringestablished businesses in industrialisedcountries. In 2005, for example, the Chinesecomputer manufacturer Lenovo acquiredIBM’s PC business to become the globalleader in the PC industry. And in January2007, the Indian conglomerate Tata boughtAnglo-Dutch steel firm Corus in a dealworth EUR 8.7 billion – the largest foreigninvestment ever undertaken by an Indiancompany. Only a few months previously,after a fiercely contested takeover battle,

Anglo-Indian steel company Mittal took overLuxembourg rival Arcelor to become theworld’s largest steel producer.These are just some higher profile examplesof the will and ability of emerging marketcompanies to take over whole businessesor divisions of companies in industrialisednations. PricewaterhouseCoopers’ “10thAnnual Global CEO Survey” revealed that67 per cent of Asia-Pacific CEOs polledintend to conduct M&A outside their regionor with new trading partners. Emerging market companies that aresuccessful at home want to put theirsuccess to the test internationally. Largecompanies in countries such as India, Chinaand Russia are now playing an active role inglobalisation. They have the financial meansto become global players, and the emergingmarkets now account for a steadily increas-ing share of foreign direct investment. Recent developments in M&A are at theheart of the “CEO Survey” 2006, whichgives a representative insight into the extentto which mergers and acquisitions are driv-ing the process of globalisation. CEOs inindustrialised and emerging nations allrecognise a growing class of wealthy, pros-perous consumers around the world, withenormous growth potential which, theybelieve, can best be tapped by entering themarket directly. Financial flows are by nomeans the only factor influencing the inter-connection of markets; knowledge, cultureand people have become the key aspectsof globalisation.

Integrating cultures the greatest challengeRegardless of the direction of a cross-border transaction, the greatest challengefor both the buyer and the target company

Global mergers and acquisitions: A hugecultural challenge. With plenty of available capital in the markets and the global economy strong, the mergers and acquisitions market is flourishing. Many deal makers expectrecord-setting deal levels to continue in the coming year and are eager to capitalise on opportunities before the euphoria ends: so eager that traditional deal barriers are falling and global partnering is taking on a new face.

New MarketsM&APost DealIntegration

Amity Forrest, Leader Transaction Services, Advisory


will always be to bridge the cultural differ-ences. When businesses from completelydifferent cultural backgrounds are broughttogether, cultural factors take on a wholenew dimension, and this in turn requiresnew approaches to M&A. There is increasing awareness that a global-ly driven deal really involves buying one ormany local companies. Maintaining abalance between global objectives andlocal aspects is essential to the success ofa cross-border deal. Respecting the localculture, respecting and motivating localemployees, and understanding the specificneeds of customers in your new marketwhile at the same time ensuring that globalpresence adds value – these are the hugechallenges of today’s M&A market. Thecultural implications of a transaction areperhaps more long-lasting and challengingto address than the financial, tax, legal andoperational consequences. Integrating different cultures after the deal ismuch more difficult than actually closing thedeal. The key success factors for integrationare careful planning and intensive communi-cation. The best-in-class companies are theones that are already planning for the inte-gration while due diligence is still inprogress. They are the ones that recognisecommunication is vital if you want to createan environment of acceptance wherepeople recognise and understand the differ-ences but still strive for the same goal.

Finding a balance between global andlocal interestsIn addition to cultural issues, one of thegreatest obstacles to cross-border M&A isregulation. There are regulatory hurdles atso many different levels. First there isnational legislation and intervention fromgovernments acting in the “national inter-est” (this happens not just in Asia, but insome European countries as well). Thenthere are the national and supranationalmerger authorities, plus local regulations,which can also vary within a single country.Most recently, regulators are stepping in to

protect shareholders’ rights, adding anotherlevel of regulatory complexity to deals.Regulation can, however, also serve as anincentive for cross-border mergers andacquisitions. In an interview Ratan Tata,head of the Indian conglomerate Tata,asked rhetorically how long it would havetaken before his company had been allowedto take over an Indian business the size ofCorus. Tata is one of the entrepreneurs whohave grasped what today’s M&A market isall about: he wants his company to beperceived as a global operation that feelslocal but is based in India.

Switzerland well placed The business of globalisation involvesopenness, acceptance and understandingof other cultures. We can’t stop or turnback. The losers are the countries who tryto protect themselves from globalisation;the winners are those that manage toachieve a balance between global and localinterests. Switzerland is well placed in thisregard with its tremendous number of inter-national companies and executives. Thereis a certain openness, understanding andacceptance of other cultures which makesSwitzerland unique. One example is Kaba, amanufacturer of security systems with along tradition. In August 2006, Kaba boughtWah Yuet Group in Taishan City near HongKong. The former owner and CEO of theChinese company is now on the board ofdirectors of Kaba Group.

SummaryThe record level of global dealactivity is forcing companies to find solutions to seamlesslyblend the international and localaspects of a transaction – revolutionising the way globalcompanies operate.

Free copies of the “10th Annual Global CEO Survey”can be ordered at [email protected]


[email protected]

Outsourcing is more than merely a logisticalor production issue: it involves delegatingpart of the corporate value chain, whichmeans losing a degree of control and sacri-ficing know-how. If only for this reason,outsourcing should be given carefulthought. Added to this, every organisationhas processes that are of strategic impor-tance and which – because they are part ofits core competencies – must not beoutsourced. These competencies have tobe defined before any decision on out-sourcing can be made.Outsourcing is always a make-or-buy decision that has to be taken at topmanagement level; from the moment theidea of looking into outsourcing is putforward, it should have the backing of thewhole of management.Companies have many different reasons fordeciding to outsource. In most cases theyopt for outsourcing for reasons of cost.Producers who are subject to market forcesin a competitive global marketplace oftenhave no choice: to remain competitive theysimply have to outsource production. Atypical example is the consumer electronicsindustry.

But you may also be motivated to outsourceby the desire to gain a foothold in a new,promising market. This is often the reasonwhy companies outsource to one of theAsian emerging markets. If market penetra-tion, as opposed to cost optimisation, isyour objective, your make-or-buy decisionwill have to take a different set of factorsinto account.

Forced to outsourceOne concept that is heard increasinglyfrequently in the wake of globalisation is so-called unfriendly outsourcing, where a largeorganisation works with a supplier only ifthe latter agrees to follow it into othermarkets. This means that outsourcing is theonly option if the supplier wants to remain inbusiness. If this happens, suppliers – inmost cases medium-sized companies –have to decide whether they are prepared tomobilise unplanned resources and even runthe risk of cash flow or profitability prob-lems, or whether they would prefer not todo business with the customer (see inter-view).

Companies that outsource production forreasons of cost don’t necessarily have to go as far as China or India. Alongside fulloffshoring you also have the option ofonshoring or nearshoring. Depending on thebusiness, it can make perfect sense to relocate production to another canton orEuropean country. Organisations often failto recognise the potential of nearshoring.Southern and eastern European countriessuch as Portugal or Hungary are closer tohome in cultural and geographic terms, andoffer a high degree of legal security. Somecompanies have recognised the benefits,and have onshored or nearshoredprocesses that were previously offshored.

You can’t outsource problemsRegardless of the type of outsourcing acompany is considering, a number ofcrucial points have to be thought throughbefore the final decision is made.First you have to devise a business modelthat adds value, either by reducing costsand maintaining quality at the same level, or by improving quality and innovation whilekeeping costs at the same level or evenreducing them. The budget should becalculated on an absorbed cost basis thattakes account of the extra supervisory workinvolved in addition to the costs of transportand warehousing. Oversight and supervi-sion are at the core of outsourcing manage-ment: you have to make sure that the service is delivered, quality standards aremaintained, and delivery deadlines are met.Secondly you have to remember thatoutsourcing ties up management resources.From the initial idea to its execution, you

Outsourcing: Recipe for success, or risky bet?For many companies in the West, outsourcing is the most obvious recipe for survival in the global marketplace. But outsourcing parts of the valuechain involves considerable business risks, and must be planned and implemented clearly and methodically.

StrategySupply ChainRisk Analysis

Franco Monti, Partner, AdvisoryOurtsourcing/Offshoring


Ruedi Döbeli, how did your company getinto an unfriendly outsourcing situation?Four years ago we were approached bySiemens, one of our most importantcustomers. Nowadays large companies likeSiemens win major business from theChinese government on condition that theymanufacture at least 50 per cent of theorder locally. But since they now tend tobuy in and assemble parts rather thanmaking them themselves, these companiessuddenly have a problem: they can’t findsuppliers in China who can deliver compon-ents of the required quality. So they asktheir European suppliers to go with them toChina.

Would you have lost Siemens’ business ifyou hadn’t started producing in China?Indeed we would, at least for certain pro-jects. For example, one of the orders wasfor the inner lining of the ICE wagons thatSiemens makes for China. If we’d said no,we would also have lost out on developingthe product and the first production series –because the whole development and manu-facturing process takes place in Switzerlandup to the moment that the product is readyfor serial production in China.

What are the implications of the jointventure in terms of Romay AG’s cashflow and profitability? Back on our first visit to China we wereimpressed by the huge boom taking placeover there. Explosive economic growthmeans that people have to be extremely

mobile, and the only realistic way of copingwith this is by rail. This in turn means thatthere will be demand for rolling stock, andthis demand will last for a long time. So therisks of getting involved were calculable; ifthings didn’t work out in China, there wasno way this would jeopardise our businessin Switzerland. And this has turned out tobe the case: in 2006, Romay created 18new jobs in Switzerland, mostly as a resultof the project in China. So it’s had a positiveimpact on our business in Switzerland. Ourinvestments in China are kept separate fromthe parent company. This is absolutely vital in an undertaking of this sort, becauseconditions in emerging countries canchange at a moment’s notice.

How did Romay manage to find a partnerin China?We kept our ears open to find out about theexperiences of companies in similar situa-tions. It was clear that a joint venture with alocal partner was the only viable option. Thebusiness of choosing a partner was also

made easier by the fact that the Chinese railministry had alerted local suppliers to theimminent arrival of European competitors inChina, which meant that these supplierswere also on the lookout for partners inEurope. Our future partner, Victall, had beenputting out their feelers in Europe. On a trainjourney they were struck by the inner liningof the ICE trains. When they made enquiriesat Siemens they were pointed in our direc-tion.

But establishing a joint venture in Chinaisn’t without its legal problems, is it?We even went one step further by foundinga limited liability company. To clarify thelegal situation we sought advice from amajor German law firm that runs a largeoffice in Shanghai and has the know-how todraft contracts that bridge the gap betweenAnglo-Saxon and Chinese law.

How do you tackle the challenge ofmanaging the outsourcing engagement?Since our Chinese partner holds 50 per cent of the company, it has a vested interestin ensuring that everything runs smoothly.We also periodically send personnel fromSwitzerland to enable us to exert a decisiveinfluence on the management. Butoutsourcing management is a sensitiveissue. The mentality over there iscompletely different. The people are poorlytrained, and the low wages aren’t exactly agreat incentive either. This means productiv-ity is a major problem. Even so, in mostareas we’ve attained similarly high levels ofquality as in Switzerland.

Looking back, would you say it was theright decision?Oh yes, our experience has definitely beenpositive. We now employ 100 people inChina, and by the end of the year this figurewill have reached 200. The order books arehealthy. But of course in three years’ time Imight take a completely different view ofour outsourcing engagement. //

Romay AGWhen the customer demands outsourcing:“Our experience has been positive.”

To avoid losing business, in August 2004 Romay AG entered into a joint venture with a local partner in the Chinese industrial centre of Qingdao. Head of sales and board member Ruedi Döbeli reportson how the company was able to turn the spectre of unfriendlyoutsourcing into an opportunity.

Romay AG, based in Oberkulm, canton Aargau, is aleading polymers technology company. Its main business is manufacturing high-volume moulded parts for small- andmedium-scale runs in the capital goodssector. Romay AG was established in 1946,and now generates sales of some CHF 40million with a staff of around 200. In August2004, Romay AG teamed up with a localpartner in the Chinese industrial centre ofQingdao to found a joint venture: QingdaoVictall-Romay New Material ManufacturingCo. Ltd.



can expect the process of outsourcing totake at least 12 to 18 months. Thirdly – and this is the most sensitive point– you have to realise that you can’toutsource problems. The aim of outsourcingis to optimise business processes, not todelegate responsibility for an area of busi-ness with structural problems to an outsidesupplier. Not only do you not get rid of theproblems; sooner or later the supplier willalso notice them and demand compensa-tion. Even if there is too little time to restruc-ture the area of business in question, inmost cases you can address the mosturgent problems pragmatically. In any caseyou have to make sure before yououtsource that costs are transparent and amanagement methodology is in place thattakes account of organisational develop-ment issues as well.

Do the analysis before choosing a partnerThe management and board should onlymake their decision once there is clarity onthe motives for outsourcing and the criticalissues. If they opt for outsourcing, it isimportant to set up the project carefully andthoroughly, and give the project teamenough time to prepare. You should alsotake care to preserve the trust of your staffwhen building the project team, as this typeof change within the organisation alwayshas implications in terms of people’s posi-tions and jobs.

Once you have decided to look intooutsourcing, before actually implementing asolution you have to do some thoroughanalysis:• A business analysis to find out thingslike what processes and products areaffected and how the value chain willchange as a result of outsourcing. Thisanalysis should also include a review ofyour unit costs.• A legal analysis covering both the trans-action itself and the intellectual propertyrights involved.• A risk analysis to quantify and define theprobability of the financial implications –which could be existence-threatening – ofthe various different scenarios.If, following this analysis, management isstill resolved to go ahead with the project,the search for the right outsourcing partnercan begin. Here it’s very important to take acritical look at potential partners in terms ofethical behaviour and the sustainability oftheir production processes. Stakeholdersincreasingly demand proof, for example, that suppliers treat their staff humanely andthat production does not pose any majorenvironmental risks.

Think in terms of the alternativesA particularly tricky point in legal terms isthe design of the service level agreement,which must cover all the relevant legal,financial and insurance details. Negotiationsspanning different jurisdictions and legalsystems can take a great deal of time andbe very emotionally charged.At the same time the company mustconsider practical issues such as how toadapt its supply chain management in line

Outsourcing Management

2. Make-or-buydecision

3. Final selectionComparisonContract

Preparation1. Analysis andmaking contact

4. Implementation

5. Benefit

Outsourcing requires thorough preparation. Not until the company is really prepared can the individual process steps be commenced. Outsourcing management comprises above all project management, strategic coordination,financial and legal matters, logistics and monitoring.

SummaryOutsourcing is a make-or-buydecision that must be made at topmanagement level, and only onceall the aspects have been exam-ined clearly and systematically.First the reasons for outsourcinghave to be clarified, and then thebusiness implications and risksmust be analysed. When it comesto outsourcing it’s important toalways think in terms of the alter-natives: nearshoring, for example,might turn out to be a valid alter-native to offshoring.

with the new outsourcing arrangement, orhow to maintain the quality of its productsand services – for example maintenanceagreements or guarantees – when it nolonger has direct control of parts of theproduction process.If you always remember that outsourcing isa make-or-buy decision, you’ll be able totackle the difficulties in a more relaxed fash-ion – because you will always see an alter-native.

[email protected]

After long and intense political debate, thenew salary certificate was introduced inmost cantons with effect 1 January 2007 –four years later than originally planned – andwill be mandatory as of the 2008 salaryyear. This is the first time there has been astandard salary certificate form for thewhole of Switzerland. The tax authoritiesexpect the new certificate to create greatertransparency and greater equality beforethe law.Despite initial scepticism, many businessesare now recognising the advantages of thenew system. In practice, it turns out that: – many companies have largely completedthe changeover,– some companies have used the changeas an opportunity to review the whole issueof expenses,– provided that the employee’s taxableincome has been calculated correctly untilnow, the new salary certificate will not leadto heavier taxation.

Payroll accounting in the context ofcorporate governance Companies striving for good corporategovernance are taking the process of imple-menting new measures in payroll account-ing particularly seriously, and want to usethe new salary certificate as a testingground for their own compliance. They havealso realised that the certificate is muchmore than just a form: it is an official docu-ment that is the product of all the processesinvolved in payroll accounting.Payroll accounting is a challenging busi-ness, which always involves aspects ofemployment, social insurance and tax law(affecting different types of tax, forms oflevying and duties of disclosure). It is onlypossible to present a correct salary certifi-cate if all these dimensions are taken suffi-ciently into account.

Conscientious efforts to make sure thatsalary certificates are correct are not onlynecessary to meet the requirements of thelaw, but are also a matter of a company’sresponsibility towards its employees. Thecertificate is the most important basis forcalculating the tax an employee has to pay,so errors not only risk incurring sanctionsfrom the authorities, but can erode thecommitment of staff as well.This means that responsibility for payrollaccounting should be given to experiencedspecialists working in close collaborationwith the human resources department. Thisis particularly important given the complex-ity of today’s compensation models, whichincreasingly include flexible, performance-related remuneration and fringe benefits.Management must make sure that a frame-work and infrastructure are in place toenable these different departments tocollaborate.The complexity of payroll accounting issomething that has to be addressed inde-pendently of the new legal requirements.Fundamentally, the key is to give appropri-ate emphasis to the payroll function andstructure it in such a way that internalprocesses and those involving other depart-ments such as HR or financial accountingrun smoothly. Many organisations are usingthe changeover to the new salary certificateas an opportunity to review these internalstructures.

New salary certificate: An opportunity toenhance corporate governance.Companies that apply the new salary certificate guidelines meticulously can improve their corporate governance. Not only is the changeover to the newcertificate a great opportunity to review internal processes and structures, but laying down clear rules on compensation also increases transparency andbuilds employee trust.

HumanResourcesComplianceInternalProcesses

Brigitte Zulauf, Partner,Leader Accounting & Payroll Services, Zurich



Secure legal framework, but more guidance needed in certain casesIn many respects the guidelines on the newsalary certificate establish a more securelegal framework. They are more compre-hensive than the previous guidelines andprovide a more concrete basis for calcula-tion. Most companies should therefore findthey give adequate guidance. However, inaddition to a number of special cases whichthe guidelines deliberately do not cover(including the issue of expatriates andsource taxes), there are also points wherecompanies will need further clarification –most of them related to expenses and training. Expenses: In future it will be even moreimportant to clearly separate livingexpenses and expense reimbursements.Payments from the employer to coverexpenses that qualify as living expenses

constitute a taxable salary component;payments to cover necessary work-relatedexpenses, on the other hand, are notsubject to tax. The rules also lay down theamounts allowable as tax-free expenses.For example, lunch expenses can be paideither in the form of a flat allowance of CHF 30 per case, or as an amount of up to CHF 35 on presentation of a receipt;whichever approach is chosen, for anygiven group of employees the employer hasto opt for either one alternative or the other.Where flat-rate expense allowances arepaid, it is in many cases worth drawing upexpense regulations and having themapproved by the tax authorities. Not onlydoes this put the whole business on a moresecure legal footing, but it builds employeetrust and makes the employer a moreattractive place to work.Training: Organisations offer their employ-ees training to enable them to stay abreastof new or more demanding professionalrequirements. To ensure that the tax author-ities do not tax training-related expensessuch as course fees, there must be a directconnection between the training in questionand the person’s job. To create trans-parency and clarity it is important to signwritten agreements with employees (forexample governing repayment obligations).This applies particularly in cases where theexpenses are reimbursed only in part, sincethere is a duty to declare this on the salarycertificate.This again underscores the importance ofclose collaboration between the payroll, HRand accounting departments. Generallythere is likely to be a trend in Swiss busi-ness towards clearer and more transparentremuneration packages, as special casesand exceptions lead to a lack of trans-parency and make implementation moredifficult.

For more information on the new salary certificate,please visit: www.pwc.ch/lohnausweis

SummaryIn practical terms, clear regula-tions and agreements help ensurethe salary certificate is correctlyprepared. The challenge formanagement is to make sure thatprocesses and an infrastructureare in place to enable the correctpreparation of the salary certifi-cate and that communication –between the departments involvedas well as with individual employ-ees – functions smoothly. Ultimately they have to ensure thatthe defined rules and agreementsare implemented correctly.

Operating in more than one cantonJust because there is a standard salarycertificate for the whole of Switzerlanddoesn’t mean that the cantons haveharmonised all the rules, and there are stillindividual provisions that companies oper-ating in more than one canton have to beaware of. For example, the followingcantons require the employer to submit thesalary certificate direct to the cantonal taxauthorities: Basel-Stadt, Basel-Land, Berne,Jura, Neuchâtel, Vaud and Valais.

Events, publications and analyses.

IOP Watch, Q1

In the 1st quarter of 2007 there were 137IPOs in Europe, in the same period in theUSA 64. In Switzerland there were 2 stockexchange listings, VZ Holding AG andCosmo Pharmaceuticals S.p.A. Londonretained its leading position for EuropeanIPOs also in the 1st quarter of 2007. Thiscan be seen in PricewaterhouseCoopers’quarterly report “IPO Watch Europe”. Forthe first time investment companies are also considered in this report. You canobtain “IPO Watch Europe 2007, Q1” athttp://www.pwc.ch/de/medienservice/medienmitteilungen.html

Event

Tax Forum 2007 The topics this year: Tax competition, Taxdispute with the EU, International andcantonal tax law developments, Theattractiveness of Switzerland and itscantons as a business location. The TaxForum is the meeting place for CEOs,CFOs, entrepreneurs and tax managers,where they can exchange tax knowledgeand discuss relevant tax questions.

Locations and datesBasle, Tuesday, 13 November 2007,Kongresszentrum Messe Basel Lucerne, Tuesday, 13 November 2007,Radisson SAS HotelBerne, Thursday, 15 November 2007, Hotel Bellevue PalaceNeuchâtel, Tuesday, 20 November 2007,Hôtel BeaulacWeinfelden, Tuesday, 20 November 2007,Thurgauerhof Zurich, Tuesday, 20 November 2007, Hotel WidderChur, Wednesday, 21 November 2007,CalvensaalThun, Wednesday, 21 November 2007,Hotelfachschule ThunZug, Wednesday, 21 November 2007,Kongresscenter MetalliAarau, Thursday, 22 November 2007, Aarg. VersicherungsamtWinterthur, Thursday, 22 November 2007,Hotel Banana CityLugano, Tuesday 27 November 2007,Hotel Bellevue au LacSt. Gall, Wednesday, 28 November 2007,Pfalzkeller St. Gallen Geneva, Wednesday, 28 November 2007,Hôtel Président Wilson Lausanne, Thursday 29 November 2007,Hôtel Lausanne-Palace & Spa

Attendance at the Tax Forum is free ofcharge. Further information and registra-tion: www.pwc.ch/events

Reader service:The authors of the topics covered in the pwc expertise section of this issue of ceo magazine can be contacted directly at the e-mailaddresses given in their article. For a comprehensive overview ofPricewaterhouseCoopers publications, please visit www.pwc.ch. You can order PwC publications and place subscriptions by [email protected] or faxing 058 792 20 52.

Subscriptions:ceo, the magazine for decision makers, is published by PricewaterhouseCoopers. The magazine is published three times a year in English, German and French. To order a free subscription, please e-mail [email protected] specifying your desired language.Address: PricewaterhouseCoopers, ceo Magazin, Birchstrasse 160, 8050 Zurich, Switzerland.


The pharmaceuticals industry approachinga growth spurt

The global pharmaceuticals industry isbooming. For the period up to 2020 theworldwide market for pharmaceuticals isexpected to grow to more than twice itspresent size to USD 1.3 trillions. This is fore-cast by PricewaterhouseCoopers’ study“Pharma 2020: The vision – Which path willyou take?”. The market growth is the resultof the increasing demand worldwide formedicines and prophylactics in the coming13 years. The study “Pharma 2020: The vision –Which path will you take?” is available athttp://www.pwc.ch/de/medienservice/medienmitteilungen.html

Good questions on the Internet:Every answer is preceded by a question. This also applies for everyentrepreneurial decision. PwC has set up an Internet platform for goodquestions, where you can find the questions posed by other businesspeople. You can answer them or ask your own good questions. The dialogue platform can be found at www.goodquestion.ch

neighbourhood assistance

Christian Guler (left) and Ernst Ravasio are convinced that independence andself-initiative are central elements of job satisfaction – and thus also of quality.Their credo: “If you see the point of your work, you are committed, and you getbetter results.”

ceo/neighbourhood assistance 39

Work with a meaning.Or: Why services sometimes come free.

Working 50,000 hours a year without pay – that’s something that goes without saying for the active members of Zurich Neighbourhood Assistance. You can achieve a lot with the power of selfless activity, a fact also demonstrated by Ernst Ravasio and Christian Guler. The two retirees have brought a whole new image to neighbourhood assistance – with unconventional methods and great success.

Text: Alexandra StarkPhotos: Andri Pol

An economic truism is that anything free ofcharge isn’t worth a jot. “Wrong,” saysChristian Guler, president of the develop-ment association Zurich NeighbourhoodAssistance: “Something’s valuable if it’sseen as such.” Services, for instance. In2006, volunteers provided 50,000 hours ofassistance to their neighbours in Zurichdistricts – free of charge. For Ernst Ravasio,managing director of the association, this isproof that there is a “market for meaning inlife, a market that is sometimes not suffi-ciently taken into account in the value paid”. Over the last few years, Guler and Ravasio –with a joint age of 132 between them – havegiven neighbourhood assistance in Zurich anew professional image. What was oncedeemed the leisure activity of bored house-wives and retirees has since become atrend with positive appeal – as demonstrat-ed by the Day of Neighbourhood Assistancethat was commemorated on 29 May thisyear with barbecues in several Swiss towns.Yet neighbourhood assistance is more thanjust eating grilled sausages together. InZurich alone, there are 14 district groups,some of which have existed for more thantwenty years. The small organisations placevolunteers who look after children, feedcats, drive old people to the doctor or go

shopping for people who are ill. Tasks forwhich there is no market – because theywould be too expensive as a service for the“customers”. Across Zurich, some 1,000volunteers work for no pay in this low-threshold sector, which is not covered byprofessional organisations such as Spitex. Up until a few years ago, the autonomousdistrict groups in Zurich were a mixedbunch of volunteers who were allocatedtasks by other volunteers according to arandom principle and with little planning.However, the need then arose for network-ing among the groups, to enable them toappeal to a broader group of helpers andpeople seeking assistance, and for them togo live with a joint website.

The power of the value of neighbourhoodSometimes it is small flashes of inspirationthat trigger something big. Guler looks backon the moment in question with pleasure. Inthe spring of 2002, he was sitting in a meet-ing of the neighbourhood assistance inter-est group of the city of Zurich. The topicwas the joint Web presence of 14 independ-ently organised district groups. Guler – who at the time was a member ofthe management team at the central officeof Spitex run by the city of Zurich – hadbeen asked to report about the experiencesof Spitex, which had gone live with its ownWeb site a short time previously. The neigh-bourhood helpers did not have sufficientmoney for professional consulting. Guler

recalls: “I listened to the discussion andsuddenly thought: This is crazy! For years,these people have been helping totalstrangers, thus providing an incredibly valu-able service to society, without being paid apenny for their trouble. And despite all that,they haven’t got the funds for a Web siteand still have to worry about their image!”“At that moment, it hit me like a bolt out ofthe blue, and I knew what had to be done,”says Guler with a mischievous grin. “Neigh-bourhood – this word has a magical appealwhich it is impossible for anyone to with-stand! And I thought: Neighbourhood assis-tance is something that is so fantastic, onlythe best can really be good enough!” Guler’s vision was that a lack of fundsshould not mean that the Web site has to bedone by either a student or a retiree. Thistask should be done by the most experi-enced agency in the city. Indeed, we shouldonly work with the best professionals andcompanies anyway – whether for sponsor-ing or for communication. When the Spitex man suggested this to the meeting participants, all he got wasincredulous looks. “Of course, this soundscrazy the first time you hear it, that only thebest can be good enough,” he recalls. “But

40 ceo/neighbourhood assistance

Sonja Virchaux, mother of two, neigh-bourhood assistance Schwamendingen:“I have been doing this for ten years now;I find the exchange of ideas and experi-ence with the people whom I help excit-ing and enriching. I am doing somethingworthwhile, it gets me out of the houseand I can still be at home when my chil-dren come home from school.”

Members of the large neighbourhoodassistance group Höngg: (from left to right) Verena Mätzler, BrunoSchöchli, Heidi Schenk, Loni Schumach-er and leader Elisabeth Kleiner.

Verena Mätzler, placement officer:“Life has been good to me up to now.Now I've got time on my hands, and Iwould like to help to make life better forothers.”

Bruno Schöchli, volunteer: “After retirement, I fell into a rut; volun-teering helped me to break out of thissituation. I regularly meet up with anAlzheimer’s patient; we have sincebecome good friends.”

ceo/neighbourhood assistance 41

ultimately it was the realisation that neigh-bourhood is something of value thatachieved the breakthrough in the efforts topublicise neighbourhood assistance.” Andbecause Guler was about to take earlyretirement at the time, he took on this jobhimself soon afterwards.Guler set about telephoning top agencies in Zurich, with élan and armed with theknowledge of the valuable product. “I hadno experience doing something like this and wondered: Where do you find primeaddresses? On Bahnhofstrasse, of course!”In the telephone book, he came across thename of the agency Iris Wirz c&p communi-cations. And he only needed one phone callto persuade the owner to implement a Website free of charge for the neighbourhoodassistance association. The agency’s commitment means that theassociation now has a professional Webpresence that far exceeds the one that wasoriginally planned. Inspired by this success,Guler contacted renowned companies and institutes in the search for financialsupport. Within six weeks he had accumu-lated CHF 100,000 donated by the city ofZurich, the national churches, and otherinstitutions and companies, including PwCas the main sponsor. “Suddenly doorsopened up that we had considered closed,”says Guler in amazement. The success was soon tempered, however,by the realisation that the Web site alonewould not be sufficient to publicise theoffers of the district associations. For this,continuous public relations were required.The new generous financial donors alsonow demanded an annual report. All thisexceeded the scope of the hitherto non-binding cooperation between the individualgroups. Consequently, in 2005 the publicrelations interest group became the Devel-opment Association of Zurich Neighbour-hood Assistance. An efficient organisationwith clear responsibilities was intended toensure minimum overheads and maximumacceptance. No easy task, as there are bigdifferences between the different groups.While some are organised as associationswith strict management, others are loose

forms of cooperation that do not even havean accounting system. From the auxiliary help to the academic,from the long-time resident of Zurich to theyoung guest worker – the group of volunteerneighbourhood helpers is a motley crew.However, they tend to be older becauseretirees have more time, and there are morewomen because they are less integratedinto the workforce. All of them work free ofcharge; only the placement officers arereimbursed for some of their efforts whentheir workload of telephone service andcoordination work goes beyond that whichcan be reasonably expected of volunteers. Just as the volunteers are different, so aretheir motives. Some come out of socialconsiderations, others from the convictionthat they shouldn't leave everything to thestate. They all have in common that they areconvinced that a good society requirespersonal commitment.

A top-down approach doesn’t work“Many people have the need to give mean-ing to what they are doing, because this issomething that is sometimes missing inpaid employment. People get this meaningfrom working free of charge,” says Manag-ing Director Ernst Ravasio, whom Gulerbrought on board almost two years ago. Together, the enthusiastic manager Gulerand the rigorous doer Ravasio are what youmight call a dream team. Ravasio worksbetween 30 and 50 hours a week for theassociation, Guler between 20 and 30 onaverage. Today, Guler knows that he, too, isfascinated by the value of neighbourhood –like so many before him. “I would not wantto receive any money for my work here; it would dampen my enthusiasm!” heconfesses. As the president, he deals with contacts and fund-raising. Ravasio,who had a long career in consulting and in between times managed a variety ofcompanies, is responsible for the develop-ment of a professional structure. He intendsto complete this during the summer.Twelve of the 14 Zurich groups have nowjoined the association. However, there wasmuch scepticism at the beginning. Thegroups were afraid of being told what theyhad to do. “This fear is totally ungrounded,”says Ravasio: “We are not an umbrellaorganisation; we provide services for theindividual groups.” The association doesnot interfere in the “classical” tasks of the

district groups but assumes tasks that theindividual groups cannot do themselves. In addition to professional public relations,these include, for instance, EuropeanNeighbourhood Day or publication of thebook “Grüezi” (available in German only), inwhich renowned figures give their opinion ofneighbourhood. There is also now a 50-page communication concept, created bythe Institute for Applied Media Science atthe Zurich University of Applied Sciences inWinterthur. Furthermore, the associationensures systematic networking with othersocial institutions and helps to organisefurther training for volunteers who want tolearn how to differentiate themselves or howto deal properly with the mentally ill. The association, which also includesmembers of the district groups, offers train-ing – members who don’t want to take part,don’t have to. Former manager Ravasiosees the key to success in this principle, for“volunteers do not pursue the organisation’sgoal. Instead, they have their own objec-tives.” From an organisational point of view,it would undoubtedly be easier for manage-ment to decree that everything be standard-ised. This would improve transparency andsimplify coordination. “But a top-downapproach doesn’t work!” insists Ravasio.“None of the volunteers was born yester-day, and they have good reason to do theirthings as they do,” he says. And personalcommitment plays just as big a role here asestablished processes, the developmenthistory and group dynamics. “Independence and self-initiative are centralelements of job satisfaction with us – andthus also of quality,” says Guler. “If you seethe point of your work, you are committed,and you get better results.” By creatingmore freedom for the helpers with improvedstructures, it is possible to ensure a top-class operation, he says. And Ravasio adds:“When we force the volunteers to do some-thing they don’t want to, their motivationfalls – or they stop altogether. And that isvery definitely not the aim of the wholething! But we can convince them that itwould be better to do something differently.And we are working on that.” //

trend. dialogue.

Questions about questions. It’s hard workgetting a good answer.

You need to be naive enough to ask questions and intelligent enough to examine the answer critically, says Roger de Weck.

Interview: Christian Jauslin

Mr de Weck, what makes a good ques-tion?One that makes the person who’s asked thequestion think.

Is there such a thing as a bad question?Oh, yes. But for every bad question there’sa good answer.

Which is more important: a good ques-tion or a better answer?The most important thing is the relationshipbetween the person being asked the ques-tion and the person asking it. You can’t havequestions without people.

To be able to ask a good question, is itnecessary to imagine an answer your-self?That’s not asking questions, that’s tickingoff a checklist.

Does this mean you have to know noth-ing to be able to ask good questions?Socrates said: “I know that I do not know.”The person asking the question has to knowthat while they might know everything, theyalso don’t know anything.

How do you come up with questions on atopic which you know nothing or verylittle about?It’s 90 per cent hard work, 5 per cent inspir-ation and 5 per cent intuition.

Could you explain the “90 per cent hardwork” bit?Both asking questions and giving answersrequires work and knowing what you’re talk-ing about. By work I mean a way of askingmyself questions and seeking answers sothat instead of asking the most obviousnext question, I am able to ask a slightlyless obvious or more sophisticated one.

Do you have to be curious?Without curiosity you wouldn’t be askingquestions in the first place.

What about the 5 per cent inspiration youmentioned? What do you do?Nothing. Go for a walk. Be open. Look at the person I’m talking to. Read the news-paper. Go to the movies.

Is there a method for intuition?No. It’s a combination of the intuition you’reborn with and know-how that has beenpassed on to you, a kind of highly intelligentnaivety: that childlike quality I mentionedearlier. You have to be naive enough to askquestions and intelligent enough to be ableto discuss the answers critically.

When does a good question become abad one? And vice versa?A good question becomes a bad one if youask it too often. A bad question becomes agood one when it prompts a good answer,when the interviewees give themselvessome leeway. The great thing about inter-views with intelligent people is that thoseasking the questions always appear moreintelligent than they actually are becausethey get good answers to stupid questions.In my lifetime I’ve interviewed two or threepeople who’ve made me feel like a genius.But only because they were able to fashiona diamond out of the raw material I gavethem.

The well-known journalist and publicist Roger de Weck was the Chief Editor of the “Tages-Anzeiger” and “Zeit” newspapers. Today, he works for variousSwiss and international media. De Weck is Presidentof the Graduate Institute of International and Devel-opment Studies in Geneva. He is Visiting Professorat the College of Europe in Bruges and Warsaw. In 2004, he was awarded the Davos media prize.

42 ceo/trend

Do people go into an interview withpreconceptions or completely withoutthem?Well, we all have certain preconceptions.This game of questions and answers is agame of enlightenment – in the sense of theAge of Enlightenment. Les Lumières, as theFrench put it. It’s the idea that there’s notruth other than discursive truth – askingquestions and getting answers that enableyou to form your own opinion. It’s likeconstantly coming closer to the truth or to anumber of truths. And, even more impor-tant, people who ask questions aren’t ideo-logues, because ideologues only haveanswers and no questions. And if you askquestions, you’re signalling that you respectthe person you’re talking to. If you despisedthem you wouldn’t be asking them ques-tions. In other words, there is probablynothing more characteristic of interpersonalrelationships than questions and answers.And of course, it’s even better when theprocess is two-sided.

Have you ever regretted asking a ques-tion?Yes, when it really betrayed my ignorance.In other words, a question that wasn’t

pitched at the level it should have been. It’sembarrassing when you ask a question thatyou thought would challenge the personyou’re asking, but which only ends upletting them know that you don’t really knowwhat you’re talking about.

Have you ever regretted not havingasked a question?Yes, because I didn’t think of it. I was tooslow, and the person I was talking to wastoo fast.

Is it possible to learn how to ask spon-taneous questions?To a certain extent you can train any ability,but that’s not necessarily what counts. Ifyour job involves asking a lot of questions,for example, you can do the following exer-cise: Talk to someone, ask them questions,interview them, but then – and it must be afriend – instead of following each answerwith the next question, first summarise theiranswer. That trains your ability to listencarefully to what the other person has saidso that your next question actually refers tothe previous answer rather than just fittinginto your own scheme.

As you get older, how do the questionsyou ask and the way you ask themchange?You probably know the anecdote aboutEinstein writing the questions for an exam.

His assistant comes rushing in: “Professor,Professor, you’re asking the same questionsas last year, aren’t you?” To which Einsteinreplies: “Yes, the questions are the same,but the answers aren’t.” In other words, Imight ask the same question, but in mostcases I’ll ask completely different questions.However, the essential underpinnings of allquestions – existential issues like, Why am Ihere? What am I doing here? and What do Iwant to achieve here? – are always thesame.

Ask any question you like as long asyou’re not afraid to hear the answer: Doyou agree with this principle?Now that’s a really good question thatmakes me think. It’s true that we’re some-times so afraid of the answer that we don’task the question in the first place. That’swhat you call repression. Maybe it’s some-times better not to ask a question. But inthe long run it’s really much better to askalmost all the questions you have. Havingsaid that, though, I still intend to get to theend of my life with a few questions leftunanswered. //

“It’s true that we’re sometimes so afraid ofthe answer that we don’task the question in thefirst place. That’s whatyou call repression.Maybe it’s sometimesbetter not to ask a question. But in the longrun it’s really much better to ask almost allthe questions you have.”

ceo/trend 43

44 ceo/argor-heraeus

Security is worth its weight in gold.

ceo/trend 49

Each year Argor-Heraeusrefines more than 300 tons of gold worth CHF 8 billion.This requires exacting provisions with regard toenvironmental protection and security – as well as mandatory ethical regu-lations that apply to allmembers of the supplychain.


Text: Corinne Amacher Photos: Roth und Schmid

From a distance the architectural landscapeof the Mendrisiotto in the southern corner ofSwitzerland looks like just another grey andimpersonal industrial area. The truly remark-able details are only apparent at a secondglance – concrete walls up to tree height,four rows of barbed wire and cameraswherever you look. A steel gate opens, asthough by a ghostly hand, to let in a trans-porter and closes again without a sound. Anelectronic eye checks arrivals. The few visitors to Argor-Heraeus let in bythe porter could well feel like ScroogeMcDuck – hefting gold bars until theirbiceps ache, letting gold dust run throughtheir fingers like shingle or marvelling atwildly glittering crystals of silver. The prem-ises of the country’s foremost preciousmetal processor hold temptations at everyturn, but it is unwise to succumb to them. Not even the CEO is able to avoid the strictsecurity arrangements, and just like all theother 140 employees, when leaving thefactory Erhard Oberli must pass through the

electronic security doors to the exit. Anincorruptible random generator selects theguinea pigs for the special daily check andmakes no distinction between cleaning staffor directors. If Erhard Oberli is picked out atthe checkpoint, he is not permitted to go tothe main exit but has to make his way to asecurity exit off to one side, where he iscarefully checked for traces of preciousmetal. “I should not and do not receive anyspecial treatment at our security checks,”he says.Each year Argor-Heraeus refines over 300tons of gold worth CHF 8 billion. This repre-sents more than 10 per cent of the annualvolume extracted from gold mines world-wide. Added to this are 250 tons of silverplus smaller amounts of platinum and palla-dium. The material is first cleaned of impur-ities and residues and is then furtherprocessed into bars or other products of thedesired purity, such as blanks for clockcases or pendants. Every day preciousmetal worth several tens of millions of CHFpasses through the factory areas. The CEOis no longer impressed by such figures.Working with these valuable commoditiesover a period of time makes you start to

disregard their value. Gold is not treasurefor him and his employees but simply amaterial with which they work. Erhard Oberli has presided over the company for 19 years, although his originalintention was to stay for just three. A civilengineer by profession, he was essentiallyresponsible for the construction of thefactory in Mendrisio in the mid-1980s onbehalf of banking giant UBS and theGerman company Heraeus, and subse-quently entrusted with managing it. In 1999,Heraeus and the management, led by Oberli,took over the company completely. Laterthe German Commerzbank and the AustrianMint also acquired an interest in it. As a jointshareholder, Oberli not only holds the posi-tion of CEO but is also an entrepreneur.This is evident from the zest with which the57-year-old CEO hurries through the factorygreeting staff by name and talking aboutprocesses and products in detail. His enthu-siasm for the job is still apparent after allthese years. However, times have not

The gold is cleansed of impurities and residues and then processed further in therequired purity into bars or other products.

ceo/argor-heraeus 47

always been as favourable as they aretoday, when the business is experiencingincreasing demand, all three profit centresare in the black, and the company has beenable to enter into new areas of business andinnovation. When UBS sold off its sharecompletely in 1999, the company lost itsmost important clients at one stroke. Themanagement had to restructure the compa-ny, expand the range of products and serv-ices, and adjust to new customer require-ments.

The highest standard of precisionIn the past, mines, banks and privateinvestors were the most importantcustomers, but over time the watchmakingand jewellery sectors have become moresignificant. In the 1990s, the proportion ofsemi-finished products for the watchmakingindustry was less than 10 per cent ofturnover – today it is more than 30 per cent.“We are an industrial company, but we workwith the precision of a watchmaker,” saysOberli. The company, whose slogan is “the

golden link”, acts as a service providerbetween the gold producers and theprecious-metal-processing industry. TheArgor-Heraeus customer list boasts themost exclusive luxury watch manufacturersand international banks. Since the price war in the industry hasreached new extremes, success can onlybe assured through innovation and ongoingimplementation of the latest high-techmethods. This includes a computer-controlled swaging machine, which themanagement commissioned a year ago at acost of CHF 1 million. This processes alloysto eliminate even the smallest porosity of a

tenth of a thousand millimetres. Materialcompressed in this way is of the highestquality, which is what watchmakers requirefor their most expensive timepieces. Oberlisees his task as working together withcustomers to develop the products in aprocess that adds value.Argor-Heraeus is also one of the marketleaders in the application of kinegram tech-nology for embossing precious metals.Kinegrams show different images depend-ing on the visual angle and are used assecurity marks, for example on banknotes.Along with the Swiss company OVD Kinegram AG, which has evolved from theformer Landis+Gyr, Argor-Heraeus hasdeveloped a process whereby a pattern to athousandth of a millimetre in thickness canbe embossed on the surface of a gold plate,and the tiny facets reflect the light fallingupon them in all the colours of the rainbow.With this patented process, Argor-Heraeus

Every day, preciousmetals worth several tensof millions of CHF aremoved through the fac-tory halls. To the employ-ees, they are not a treasure but rather pureworking material.

During the random safety check, Erhard Oberli is examined for traces of precious metals. Even the vacuum cleaner is routinely checked for residues.


holds the exclusive worldwide rights formanufacturing kinebar® gold barsembossed with KINEGRAM® technology. Operations can be more heavy duty in otherparts of the company. When gold is beingmelted, it bubbles away at 1,200 degrees inthe vats. In the summer heat, the workingclimate can reach 45 degrees in the smelt-ing plant. In other areas it looks like a chem-ical plant – and a chemical plant it is atArgor-Heraeus. Gold is refined in two differ-ent ways – either by using electrolytic goldseparation, which takes around 22 hours, orvia a chemical process, which is indeedfaster but more complex. As preciousmetals are very expensive, it is importantthat they be processed immediately in theplant and undergo short throughput times.One way or another, large quantities ofchemicals are used, from hydrochloric acidand saltpetre acid to chlorine. For thisreason, the company’s cellar contains acapacious recycling processor in an acid-proof concrete tub, where all wastewater ispurified and reused as far as possible.

Oberli maintains that the rigorous require-ments with regard to environmental protec-tion, safety and quality in Switzerland are aconsiderable cost factor. For example,Argor-Heraeus is obliged to employ aSwiss-certified fine-metal inspector who issubject to scrutiny by the Federal Depart-ment of Finance. Although production canbe carried out more cheaply in other coun-tries, Oberli is adamant in his determinationto keep Switzerland as a production site.“We do not want to go to one of the cheap-production countries. This is upheld in ourstrategy, and I have made this clear to ourstaff,” he emphasises. Next to service,security and a reputable image are the mostimportant business tenets for a gold refinery– and ultimately they are also vital for sales.

Respectability is also important – “We havean old virtue to thank for our success, andone that has rather lapsed into obscurity –good, solid craftsmanship,” says Oberli,who wants to achieve his objectives in“small persistent stages.” There are neitherhigh-flyers nor flops, and all products andservices – from refining to the manufactureof gold bars and alloys – should continue tobe offered into the future. The shareholdersalso serve as a sign of continuity, and thecompanies among them largely consist ofbusinesses that are steeped in tradition andhave long-term industrial objectives.

Turning a debacle into an opportunityOberli took it personally when Argor-Heraeus hit the headlines in April 2005. In areport by the United Nations which wasleaked in advance to the press, the firm wasaccused of processing gold from dubioussources in Africa and thereby breachingsanctions. Oberli was shocked by the vehe-mence with which the company wasattacked: “First, it did not concern a directcustomer relationship, but a customer of a

In addition to service, reliability and seriousnessare the most importantbusiness principles – andultimately also decisivesales arguments.

A lot of importance is attached to environmental protection. Waste water iscleaned in the recycling system and prepared for further use.

ceo/argor-heraeus 49

customer; second, the Argor proceedstotalled less than one-tenth of a per cent ofthe total proceeds during the period inquestion; and third, the deliveries hadalready been discontinued before the accu-sations, that is to say in the spring of 2005.”It was only in February this year that the UNcompletely withdrew the allegations againstArgor-Heraeus retrospectively, as from May2005. That is a long time to wait when youconsider that a company has to continue totrade. “We have our good long-term rela-tionships with our customers and banks tothank for the fact that we have comethrough this year so well,” says Oberli. “Itwas also very helpful that SECO, the StateSecretariat for Economic Affairs, stood byus the whole time and that the Swissambassador at the UN supported ourcause.” Despite the image-related issues, 2006turned out to be the most successful year ina long time. “A real record-breaking year,”enthuses the CEO. “Our turnover went up

by more than 30 per cent, and we were ableto increase our staffing at a similar level.” Inaddition to this, the company’s second newbranch was founded in Milan, alongside theone in Pforzheim, Germany. Ultimately it was possible to turn the de-bacle into an opportunity. “We have learnedthat it is not enough to adhere strictly to alllegal provisions,” says Oberli. “You alsohave to personally ensure that ethicalprecepts such as human rights and environ-mental protection are followed – and indeednot only in your own company (which isobvious to us!), but also among allcustomers and suppliers.” Consequently,efforts are now made to compel allmembers of the supply chain to adhere toethical regulations. In the meantime, Argor-Heraeus has become an active member ofthe Council for Responsible Jewellery Prac-tices (CRJP) and subscribes to the WorldCheck database, a service that monitors allbusiness dealings.Protection is important in the Ticino factorytoo. In the past there have been variousattempts at theft, but each time, the per-petrators have been caught. Oberli believesthat monitoring the material flow is just as

important as security checks. What goesinto production and what comes out againis measured, weighed and checked to thethousandth gram. Perfection lies in thedetails. Each department has its own vacu-um cleaner, which is regularly scoured forresidues. Staff work clothes are not thrownaway but burned in order to reclaimprecious metal remains. Even 100 gramsgathered this way constitutes quite asubstantial amount given that the price perkilo is CHF 20,000. Also, for securityreasons, all the gold that can be seen in thefactory area is only part of the material thatgoes in for processing. By far the greatestproportion of the precious commodity isstored in a vault protected by steel barsbehind 6-ton steel doors. Here, all the goldbars are stacked on ordinary pallets (thetype used by the Swiss Federal Railways)as though they were filled with chocolate.Oberli tries to rattle the door of the vault.“I feel reassured when it is locked,” he sayswith a laugh. //

Argor-Heraeus sees itself as a service provider between the gold producers and the firmsprocessing precious metals. Its customers include manufacturers of exclusive jewellery andluxury watches as well as international banks.

50 ceo/ulysses

“Ulysses”: Comparing projects for street children in India.

In India, thousands of street children areforced to survive on their own. According toa study by the Indian foundation, Childline,more than 100 non-governmental organisa-tions (NGOs) all over the country are tryingto help these children. In turn, internationalchild protection organisations and privateindividuals are supporting the NGOs withfunds and assistance. The problem is that itis impossible to compare the work of theNGOs – making it difficult to select the mostsuitable organisations for the tasks.On the initiative of Childline, the aim was toestablish a framework that helped to makethe NGOs comparable in terms of reportingand invoicing. Furthermore, non-financial,qualitative standards were required thatmade it possible to assess the work of theNGOs. No problem, thought the “Ulysses”team from PwC as they headed to India in2001 to support Childline in this task.“We had totally underestimated this task,”recalls Adnan Akan, who was 31 at the timeand is now an Assurance Partner at Price-waterhouseCoopers in Istanbul. “Wethought creating such a framework would

be a routine task, just like it is at home inour normal jobs, and that the employees ofthe NGOs were clients.” Only when thehighly courteous employees at Childlinewere unable to conceal their disappoint-ment any longer, did it dawn on the four-man PwC team that a different approachwas required there. “We ventured a newbeginning and started right from scratchagain, even though time was short. Weconsciously laid aside our routine thinking.Instead, we listened closely to what peoplewere saying to us. We travelled throughIndia with our eyes wide open and dispelledour prejudices. And suddenly we under-stood more!” That was six years ago. Today, Adnan Akanis convinced that you have to become part

of the problem to become part of the solu-tion. “In an unfamiliar environment, youhave to be open to other ideas and otherways of working; you almost have to be anovice at work to really achieve something.”Even today, he is still impressed by the Indi-an employees of the NGOs who strive toachieve something without any infrastruc-ture, sitting on bare soil in many cases. “Ididn’t completely come to understand thementality of the NGOs in those ten weeks,”he says. “But it brought home to me thatmoney is not the only motivation in work.”The project was successfully concluded forall those involved, despite the initial difficul-ties. Adnan Akan is still able to put what helearnt during that assignment into practicetoday. “I listen to every new client attentive-ly and at length, without forming my opinionbeforehand and without preparing ready-made solutions in advance. I want to seethe whole forest – not just one tree.” //

The PwC “Ulysses” team (on the left, Adnan Akan) got to know the two sides ofIndia: dream tourist destinations and the tough reality of life in the slums.

“Ulysses” is a leadership development programme of PricewaterhouseCoopers. The participating PwCpartners are nominated by their country organisa-tions. In multicultural teams (comprising three tofour people), they spend two months in developingcountries, working together with social entre-preneurs, and non-governmental and internationalorganisations. The selected projects offer thechance for participants to put their professionalexpertise to good use in a totally different environ-ment.

New competitors, innovative products from your rivals, increasingly high profit expectations: the market places ever-greater demands on companies, but rarely forgives a mistake. Efficient internal and external processes are vital to your competitiveness. PricewaterhouseCoopers works with you to optimise your processes and create the basis for proactive responses – and operational success. So what’s your question? www.pwc.ch

Do solutions always need a problem?*Nicolas Chanton, PricewaterhouseCoopers Geneva

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*connectedthinking

ceo* forum/the big picture/detail

Léonard Gianadda:“I am obsessed withdetails and like to haveeverything under mycontrol. That’s simplywhat I’m like – it’s a question of character.”

12Prof. Dr Susan Gasser:“The job of a scientist is to make sense out ofmany small details.”

10

Matthias Remund “In key strategic areas you need to be familiar with the important detailsto be able to ask the rightquestions.”

06

Patrick De Maeseneire:“Every major decisiontaken by the managementneeds to be considered in light of how it affectsthe business as a whole.”

08

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the big picture and details - bei PwC Schweiz