Family Biz: Ego is not a dirty word

Gerald Oppenheim, the founder of Ego Pharmaceuticals, had a very elegant solution to the age-old problem of arranging ownership succession when only one of your two children goes into the business.
 
He believed that a successful business had to be controlled by one person, not two, so he valued the business at the time his eldest son, Alan, joined the company and decreed that the two boys would first split that amount 50/50 if the business were sold. The actual ownership, and therefore any value created after that point, would be split 95/5.
 
Now Alan Oppenheim is the managing director of a nearly $100 million international skin care business and his brother David sits on the board as a non-executive director. Alan’s wife Jane is Scientific and Operations Director.
 
Ego Pharmaceuticals is one of Australia’s best medium sized businesses, and a fine export success story. Twenty-eight per cent of its output is now sold overseas, much of in the Middle East, and Alan’s plan to is increase that to 50 per cent by 2020.
 
And visiting the business in the Melbourne suburb of Braeside, as I did this week, it’s obvious what makes it so good: the scientists are in charge. Alan is a scientist; so is Jane. Gerald, who passed away in 1995, was a chemist who started the business by making a pine tar bath oil for his father Erwin, a dermatologist, to use on his patients.
 
At first I thought the company’s name was not great. “Ego” suggests a marketing-driven business rather than one dominated by science, as this one is. But then I learned that it’s actually an acronym for Erwin and Gerald Oppenheim, so that’s all right then.
 
The history of the business is relatively straightforward as family businesses go: in 1953, at the age of 28, Gerald, a chemist, started making Pinetarsol in the laundry at home for his dermatologist father. Other dermatologists asked for some as well, so production quickly outgrew the home and in 1975 the big breakthrough came when the head of dermatology at Melbourne’s Queen Victoria Hospital asked for a change in the bath oil formula.
 
Thus was born Ego’s QV range of skin care products, which now make up about a third of its sales. The rest is a wide range of skin products (“our market is anyone with skin”, says Alan), but only one of the products needs a prescription. Apart from that one they’re all sold over the counter in pharmacies and always have no fragrance.
 
Gerald and his parents Erwin and Margot fled to Australia from Hitler’s Germany in 1939, having been introduced to an Australian stranger who agreed to sponsor them. They had been hanging on, not really believing what was going on in Germany, but in 1938 Hitler decreed that Jewish doctors could not treat non-Jewish patients and the penny finally dropped. They were lucky to get out.
 
Alan joined the company in 1980, straight from a science degree at Melbourne University, and started running the laboratory.
 
He says the transfer of management from his father to him was gradual and smooth: he slowly took on more and more responsibility until, in 1990, when Gerald was 65, Alan quietly became managing director and Gerald chairman. Jane, whom Alan had married in 1983, took over the lab.
 
It makes me wish I’d met Gerald Oppenheim. He set up a wonderful culture in both his family and his business that is a model for family companies everywhere. He didn’t hang on to control for too long, as so many patriarchs do, he cleverly set up fair ownership arrangements for his children and he established a business culture based on science, a relentless customer focus and genuine care for staff. It’s a very good mix.
 
Gerald started exporting to nearby countries – New Zealand and then Fiji and Singapore - in the 1960s, but it wasn’t until Alan was persuaded to visit Dubai that export sales really started to take off. He signed a distribution agreement for the Middle East and now sells in five Arab countries, as well as Iran and Taiwan in Asia.
 
These days the chairman of the board is non-family – Damien Smith, an expert on corporate governance as well as a director of a pharmacy chain – and there is another outside director, Barry O’Gorman, the former MD of Faulding. Also on the board are Alan, Jane and David Oppenheim.
 
Alan and Jane have two children, Charlotte, 20, and Declan, 17, and it’s too early to tell whether either of them will join the business. In the meantime it’s still growing and a steady procession of takeover offers are knocked back each year by their father.
 
Ego now has 83 of the company’s 340 staff distributing the products outside Australia and that is clearly going to grow as export sales expand to 50 per cent over the next few years. At this stage there are no plans to export to the United States, but China is definitely on the radar.
 
The profit margin is about 9 per cent, and when Alan says “profit is not number 1, or number 2, or 3 … it’s not even number 10” you believe him somehow.
 
“We just need profit to keep growing the business. It’s a tool to help control finite resources to meet infinite demand.”