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"SMEs have a key role to play in sustainability"
Interview published in PME Magazine on 28 August 2019
Patrick Odier, 64, has just extended his mandate as Senior Managing Partner of Geneva-based Lombard Odier until 2022. Managing Partner, Hubert Keller, will be taking over the reins in 2023 at the latest in a smoothly conducted succession. It must be said that the private bank is an expert on this subject at a time when some 75,000 small and medium-sized enterprises (SMEs) are facing the succession issue.
PME: Patrick Odier, you chaired the Swiss Banking Association. How are Swiss banks doing today?
Patrick Odier: The banking world has drawn the necessary conclusions from the crises and has significantly strengthened and reorganised to manage risks and offer added value to the community. What has served Switzerland well, in particular, is the fact that it has always played a fiduciary role, managing assets on behalf of third parties. Most Swiss banks have been committed to offering loans or protecting savings; their activities have not been based on hedge funds or proprietary trading.
Bank's profits are lower today, however... This is obvious, as yields are lower but Swiss institutions have increased their market share worldwide. There have been no major incidents in Switzerland with the exception of the UBS case, which was handled remarkably well. So there was no disruption. Stability and confidence were maintained. Switzerland has always had a strong ability to adapt. We saw this again in the way our companies responded during the period when the franc was strong.
It seems as if banks are showing renewed interest in Swiss SMEs.
I have heard critics claim that bank lending has declined. That is not true. Switzerland has never had any problems in offering loans. It is not always a question of a willingness to offer finance to companies: Other criteria related to the complexity of the context come into play too. In Switzerland, our offer has increased, while in other countries it has declined. Our country has the capacity to pursue ongoing dialogue with the SNB, Economiesuisse and the SBA to anticipate problems. Dialogue has also been established with the regulators. We are a country that is too small for sectors to be entirely self-sufficient; banks are just one cog in the wheel.
Does Lombard Odier see itself as a large SME?
Yes, very much so. Like any SME, we too have had to invest to adapt our procedures and continue to innovate. There are seven Managing Partners, including myself. We are owners and directors of our own company. We have managed to ride out more than 40 crises since our foundation in 1796 because our DNA is that of an entrepreneur with a long-term vision. From the start, our clients too have primarily been entrepreneurs and families, as well as pension funds. We are close to them because we face the same challenges.
What services do they ask you for?
Today, we are recognised as the go-to partner for services to entrepreneurs because we can advise them on how to structure all their assets, whether those assets are private or linked to their firm's activities or their retirement plans. Entrepreneurs often tend to put all their energy into their firms and to devote less attention to their wealth planning. It is essential to help them to develop a more comprehensive vision that encompasses both their personal situation and that of their firms, in the short, medium and long term. For example, we examine whether their cash management can be optimised, as well as analysing the structuring of their real estate assets, their level of debt, their pension status and the way in which their private assets are managed.
And what about successions in all of this?
Today, 75,000 SMEs in our country will face a handover shortly. This is something that is extraordinarily important, and we have the skills to help entrepreneurs organise their assets in order to transfer them. Seven generations of successful handovers mean that we can also provide useful practical experience. We advise all types of entrepreneurs on the question of succession, ranging from doctors with their own practice to SMEs. For example, we propose tailor-made ways of improving pension plans, while taking into account the tax payable by the firm and the entrepreneur. We also look at ways of reducing the size of their balance sheet in order to facilitate succession.
How do you advise them in practice?
We carry out an initial analysis of the business situation of our clients in terms of succession, drawing on the expertise of our in-house specialists. We then coordinate the next steps by calling on external experts (notaries, lawyers, tax experts, etc., - editor's note). We can also assist them with the governance of their family firms.
Each case is unique and based on the culture of each family.
Many transmissions will also be negotiated externally.
There are, indeed, plenty of assets available in Switzerland for company buyouts. We have EUR 4 to 5 billion placed in private equity for clients who have wished to invest in unlisted instruments. Even after entrepreneurs have handed over their firms, they are often still interested in such ventures. They continue to be entrepreneurs at heart.
However, we are not venture capitalists but financial partners. We provide advice or co-investment for clients looking for capital or partners to help them grow. Our role is to support entrepreneurs during their development phase.
We have heard rumours that several small banks in French-speaking Switzerland are up for sale...
We have 223 years of organic growth behind us. During periods of heavy consolidation, it is true that opportunities sometimes arise. If we were to be approached at some point by a company with a top-quality client base that shared our own values, why not? But for the time being, that is not our vision. We prefer to act as a partner, making our technological platform available to some nine financial institutions in Switzerland and Europe. It is an alternative way of participating in the current round of consolidation.
Your institution would seem to be heavily involved in the global policy of sustainability. Why is this?
For us, this has been a key issue for more than twenty years. To give you a recent example, I have just met the CEO of a very large Swiss company and shown him our analysis of his company's practices based on non-financial data. This triggered a very interesting discussion. Our sustainability methodology is based on three pillars, including the sustainability of the financial model, of the company's practices and of its business model. This is interesting for managers because it allows them to gain an insight into the impact of the business, both internally and externally. We are convinced that those companies with the most sustainable position will be the ones that benefit the most from the structural changes taking place in our societies.
How can Swiss small and medium-sized companies be involved in this general trend?
All SMEs are affected by this issue, which they can approach from an innovation perspective. In Switzerland, we are already well ahead in the field of the environment and life sciences and can rely on first-class research and development capabilities. By communicating their practices and impact in a transparent way, SMEs are opening up to a new generation of investors determined to use their capital as a lever for sustainability.
We therefore have all the keys for innovation and success at our fingertips. Moreover, in my opinion, the general conditions have never been so good for the creation of companies in our country, and Swiss SMEs therefore have a magnificent opportunity to play a role in sustainability.
You have been awarded B Corp certification. Are you very proud of this?
Yes, it has taken years of work to obtain this certification, which demonstrates our commitment to consistency. We are committed to doing what we say and not just to saying what we will do.
Given all the recent changes, how will small traditional banks evolve?
This is an extraordinary opportunity that is opening up for them. We must get used to working in new ways. Believe me, in ten years' time, analysing the impact of companies in both qualitative and quantitative terms will become the norm for all banks.
Are there any concrete examples of what Lombard Odier is doing for SMEs and sustainable development?
Absolutely. We have SMEs in our investment universe, and our analysts are in constant dialogue with those companies, collecting data that complements the information we already have. In doing this, they help SMEs to evolve towards a more sustainable model. In 2015, we also launched an impact fund specifically dedicated to financing SMEs based in developing countries. This fund focuses on very concrete sustainable development issues, such as access to energy, economic and financial inclusion or access to education for the most disadvantaged.
What are your criteria for sustainable investment? Are there any areas that you have decided to exclude because of a lack of sustainability?
Sustainable investment requires an analysis of three pillars: the financial model, business practices and the business model. We exclude non-conventional armaments and basic agricultural raw materials from our investments. Our approach is mainly based on encouraging and supporting companies to transition, rather than on excluding them. We see this as more constructive.
How are your sustainable investments performing?
The performance of our sustainable investments must be at least equivalent to, if not better than, that generated by our traditional investments before we incorporated our three-pillar approach. In the long term, all our investments will be sustainable as we are integrating sustainability into all our processes.
Can you say a few words about the fintechs that are invading French-speaking Switzerland?
For me, this phenomenon is not disruptive: It is transformational. I am convinced that Switzerland has everything to gain by becoming a pre-eminent player in this field. The processing of virtual assets will become essential, particularly thanks to blockchain technology. However, we do not yet recommend cryptocurrencies to our clients because they are not based on economic fundamentals, which is a real problem.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter "Lombard Odier"). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document.
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