Dr Michael Otto – interview extracts for general release
You are a thoroughbred entrepreneur. Do you have a particular credo that guides your activities?
Integrity, credibility and trustworthiness are values that are very important to me personally. I also consider social commitment, environmental protection and fair cooperation to be fundamental pillars of our society. With regard to the Otto Group, these values are reflected in our business activities. The Otto Group stands for tradition, continuity and responsible entrepreneurship. I consider these values to be the best imaginable basis for any company, especially when it comes to the question of how to shape lasting change. At the same time, it is essential to question existing methods and replace them with new ones where applicable, to drive innovation and permanently improve the present. It is this continuity of change which has become the core quality of our company; it drives our corporate culture and we will stay faithful to it.
As the Chairman of the Supervisory Board, you withdrew from the operational side of the business in 2007 and are now in charge of strategic topics. What do you see as the Otto Group’s future topics and business areas?
We will continue to drive the international expansion of our business activities, extend our various distribution channels and strengthen our e-commerce activities through innovative online business models. In addition, we plan to expand our extensive range of services for retail along the whole value-adding chain. We are particularly interested in the markets of Russia, Brazil and Turkey, but also in countries such as China, India and Mexico.
You made advances into Asia as early as the 1980s. What importance does the Asian market have for you, especially China?
India and China are and continue to be the big growth markets. That’s true for us, not least driven by our 3rd-party brand business. We are involved there in joint ventures and business cooperations. Alongside these, we are also counting very much on the markets in Brazil, Russia and Turkey.
Why does Otto not profit more from the general growth in online retail? We are the global number two after Amazon in end-customer online retail, and are also steering our growth in this area based on economic criteria. We are counting more on the variety of our sales channels, which is one way we differ from so many of our competitors. With us, our customers decide whether they want to order via the Internet, select from a catalogue or shop in one of our stores. It is not one of our primary objectives to overtake Amazon, for example. What drives us, rather, is to reach as many people as possible with our selling proposition and to satisfy them. The Otto Group sees itself first and foremost as a retailer with personal customer service.
Mail order and the Internet – what’s the future for catalogues?
We decided early on to go for a multichannel model: catalogues, online and over-the-counter retail. The biggest growth is coming from e-commerce. The significance of the catalogue business will continue to decline, although we believe that our customers in the fashion and lifestyle area will continue to place importance on the catalogues as advertising materials. Around 70 per cent of Internet customers look for information in the catalogue before buying, according to our research. Alongside mail order, over-the-counter retail is an important mainstay for us, which we will expand in the medium term. After all, over-the-counter is the dominant sales channel for the retail sector, by a long shot. We are looking particularly for concepts we can use internationally and which are multichannel-ready.
Traditional mail-order companies such as Neckermann and Quelle have vanished from the marketplace as independent companies. What is it that the Otto Group did differently?
We focused earlier and much more strongly on the Internet and on internationalisation, and we appealed to different customer groups with our various company brands. All of this gives us greater stability. The other important thing was that we always had a high degree of continuity in our management, and that will stay the same in future.
The Otto Group continues to be an owner-operated business. What advantages do you see within the current situation for owner-operated and/or family-run companies?
Entrepreneurs, in my view, should not only think of their own freedom, but they must also be conscious of their responsibility towards society and for the environment. If we want to work sustainably, we not only need determination, but also the entrepreneurial freedom to think of the long term. However, listed companies in an age of ‘shareholder value’ are often under pressure to think and act only for the short term, since their quarterly reports are due every three months. I think family companies have a clear advantage here.
How would you describe the positioning of your group of companies, also among your global competitors?
We have sound financial resources. Our activities centre on the customer, because it’s their wishes we want to fulfil. Therefore, on the one hand our focus is on a high degree of continuity, and on the other also on progress and change. This starts with very specialised and creative product ranges in the growing e-commerce area. But it stands and falls for us with the service which we offer in our group, and which we continuously optimise.
In the last 30 years, you have turned a medium-sized enterprise into a global group of companies. How would you define the interplay of power and responsibility?
Even though we are now active with 123 companies in 30 countries in Europe, Asia and North America, nevertheless the Otto Group is still a family company. Power is not what we emphasise. We think that responsible economic activity is more important. Of course, we have to turn a profit. However, I think that the long-term increase of business value is more important than short-term profit. That’s why I pay a lot of attention to the sustainable development of my company, which means a balance between economic, environmental and social interests. And adherence to values.
How do you manage the balancing act between global growth and simultaneous sustainable business?
I see no conflict here at all. As a businessman, I stand for particular values. What matters to me is that the economy must serve the common good – not the other way round. This is why I think that adhering to defined environmental and social standards is particularly important. We ensure that as we import merchandising goods, we also implement environmental and social standards with our suppliers at the same time. Our customers increasingly demand these values – and that’s why maintaining these standards is a prerequisite for sustainable growth.
What is the importance of the company’s care for its employees?
Our employees are really the bedrock of entrepreneurial success. This is not a new discovery, although currently a highly relevant one. The whole German economy is desperately hunting for good specialist and managerial staff, just as we are. In addition, we also have to be more active than before in looking after three groups of staff: first, we have to ensure that well-qualified women can strike a balance between leadership roles and children. Second, we must pay more attention to the integration of employees with immigrant backgrounds. And third, due to demographic changes, we have to retain older members of staff for longer in the employment process and create a smart symbiosis between the strengths of younger and older people.
What is your view on individual responsibility?
At Otto, we maintain a cooperative leadership style with the objective of giving every employee as much responsibility as possible. Alongside the job, the focus here is also on social commitment, protecting the environment and fair play. We support our employees in going beyond their professional activities and fulfilling functions in our society which correspond to the values mentioned. This creates on the one hand higher motivation in our staff, and on the other better identification with our company.
Globally, citizens and politicians are increasingly making decisions based on environmental and social criteria. What opportunities does this bring for your Group?
We have integrated sustainable - meaning environmentally and socially responsible - action in our corporate strategy since the mid-1980s. This long tradition means we are credible and it also helps us to gain new customer groups, since many people today are more conscious consumers than they were. They want to be able to shop without ethical concerns and they think about their actions and the resulting effects on society. They make their decision to buy more and more based on how responsible a company is. We are delighted to see this and it encourages us to continue on the path we have chosen.
How do the limits to growth and corporate growth fit together?
Growth has to be redefined. Purely quantitative growth should be replaced in favour of qualitative growth. For this, we need political and social framework conditions so that citizens and companies can move towards the future with equal security. Without social, political and technical innovations, economic innovations will not last. Everything has to work in harmony together. So this is a major task facing all of us.
What are the most common corporate mistakes that you have observed in recent years?
How do you see entrepreneurial responsibility?
The social market economy and the rules of honourable trading should once again receive more attention. Freedom of economic activity and social responsibility towards all stakeholders are two sides of the same coin. However, the great majority of businesspeople do adhere to both of these principles.
How do you feel about the discussion on manager salaries?
I think the current debate is good and proper, since I don't feel it's fair that managers should collect high levels of compensation even for poor or non-performance. However, this is above all an issue that company shareholders and supervisory boards should address.
How do you see the role of government?
In a social market economy, the state has the important task of defining the framework through laws, and therefore sets the boundaries. For example, when I think of the financial industry, we are still a long way away from achieving everything that is required in terms of regulatory implementation. I think it’s good that Germany has taken the lead in stopping short-selling, for example, and I support the financial transactions tax, even though not all European countries are taking part.
How do you feel about developments in the financial markets?
Banks should return to their core business again, which is supplying the real economy with funding. There has to be an end to short-term profiteering by individuals at the expense of the global community. The risk position of banks and countries needs to be more tightly monitored. We also need institutions are empowered to make harmful kinds of speculative trading more expensive − or even suspend them.
In the debate on the fair distribution of wealth, there are demands for higher taxes on inheritances, assets and top incomes. Do you agree with these?
I don’t agree with repeated taxation of assets which have already been taxed. Taxing capital in this way would lead to a situation where medium-sized companies especially would have to pay taxes even if they made losses. This would cost growth and jobs. If the state has exhausted all cost-reduction options, I could imagine increasing the top tier of taxation. Anyone who is making decent profits, particularly as an entrepreneur, should also pay corresponding taxes, and I mean in Germany.
What will the USP of Germany as a business location be in future, in your view?
The advantage of Germany as a business location will continue to be its high innovative strength combined with well-known German virtues such as thoroughness, punctuality and good service.
What do you think about the introduction of minimum wages?
I am absolutely in favour of introducing minimum wages. However, these should be negotiated between unions and management and they should differ depending on sector and also by region. Only where collective agreements in particular sectors cannot be made binding for all, because fewer than 50 per cent of the employees are unionised, should the government get involved.
What does the euro mean to you?
We need the euro, so we should defend it. Germany and Europe require a strong lead currency alongside the dollar.
Do you like the idea of the United States of Europe?
I don’t think it’s sensible to go that far. It starts with the fact that in Europe – unlike the USA – we don’t all speak the same language. However, we should harmonize our financial and business policies more.
As an entrepreneur, you made environmental protection a corporate goal very early on. Where does your green drive come from?
There was indeed a key event which awakened my interest in this topic. The first Club of Rome report in 1972, ‘The Limits to Growth’, really shook me up at the time. The report showed very clearly that our way of managing business did not take into account the finiteness of our resources. In some of its forecasts, the report may have overshot its mark, from today's perspective. But the principle is correct.
What role do environmental protection and sustainability play in your company?
Environmental protection and social responsibility have been integral components of our corporate strategy since the mid-1980s, since it has always been my concern to run my business in such a way that following generations would not suffer any disadvantage from it. Economic growth can indeed be aligned with the scarcity of natural resources and contribute to social progress at the same time However, it requires long-term strategies
Did you receive any support at the time for your ideas?
When I anchored environmental protection as a corporate goal, several of my colleagues called me a utopian eco-hippie. Today, the topics of environmental protection and social responsibility are ones many companies ascribe to, and many actually live them, too.
Which problems do you see as the most urgent of our time?
The increasing divide between poor and rich countries, overfishing of the world's oceans, over-exploitation of natural resources and climate change. Especially in the fight against CO2 emissions, we have to speed up. Global climate change is a reality and will, if we continue to delay action, pose great challenges very soon. Without decisive countermeasures, the temperature of the Earth’s atmosphere will increase by up to 4.5° Celsius. The risks for coexistence on our planet will then no longer be calculable. Landscapes will turn into steppes, and there will be mass migrations and wars over water. Business and politics must face this problem.
As part of ‘2° - German Business Leaders for Climate Protection’ which was created in March 2007 on my initiative, we are therefore supporting the German Federal Government on a national and international level in its successful policies for protecting the world’s climate. Its defined goal is to limit global warming to 2° Celsius, compared to the pre-industrial level.
Have sustainability policies also become an image factor for the business?
There are companies which still confuse sustainable business activity with pure charity. They finance environmental and social projects from profits which they have generated under less sustainable aspects. For these companies, the topic may be an image factor. For me, however, sustainability stands for responsible corporate management. It is a ‘must’ for companies who are serious about taking responsibility for their business activities. All companies that genuinely address this topic increase in their credibility, which also automatically improves their public reputation.
In your view, what are the most important sustainability activities in your group of companies?
How can you strike the right financial balance, in your opinion, between commercial viability on the one hand, and sustainability on the other?
Sustainable business activity doesn’t just cost money, it also helps to save it. The best example is energy costs, because energy supply and energy efficiency are definitely in the economic interest of companies. We pay particular attention to the sparing use of natural resources such as water, wood and energy – from the supply chain, through to buildings and logistics.
What do you believe is the best approach to make the vast majority of transport methods more environmentally friendly?
Fundamentally: capacity-orientated planning. We also need to slow down freight transportation. This can only be done with the support of consumers. I also think that shifting transportation towards trains and ships, as well as investing in fuel-efficient commercial vehicles and using alternative drive concepts are sensible ideas.
Please name a few innovative examples of green logistics solutions that you particularly like.
I consider environmentally friendly route planning via GPS and full utilisation of freight capacity to be particularly innovative. But I also think that alternative energy generation at the logistics sites themselves, for example by using wood chip-fired heating and photovoltaic systems, is important. In addition, there are many small things that we can do: I’m a fan of alternative engines, which could include courier bicycles in city traffic, for example.
The area of textile production has received particularly critical attention in recent times. How can you ensure that those production conditions that we consider to be sustainable and fair prevail in distant subcontractor companies?
We already audit suppliers with regard to their environmental and social standards, before they are even accepted as our suppliers. When we agree contracts, we oblige them to adhere to our Code of Conduct. We employ over 20 Social Officers at our in-market Purchasing offices. We have also developed our own Social Programme and the suppliers undergo regular audits. However, one hundred per cent security does not exist.
In your opinion, what should responsible retail and sustainable production look like in the future?
In future we have to establish control over the whole supply chain, not just parts of it like today. Climate-neutral production, transport and distribution, but also education and social-policy topics have to be resolved. Apart from adherence to defined environmental and social standards among the suppliers, more attention should be paid to supporting countries in enforcing their national laws. People in production countries must be enabled to develop through the trade with us. We ensure that as we import merchandising goods, we also implement environmental and social standards with our suppliers at the same time. Climate protection, fair dealings with employees and development policy measures which help people to help themselves − all of these must be placed at the centre.
Where is the greater need at present: stronger support from consumers for more 'green' products on the market, or more courageous companies that are prepared to be pioneers?
Neither of those. Sustainability and a corresponding range of products require joint efforts from many players. We need commitment both from industry as well as politics, and from the media as well as from consumers themselves. Every individual and every company has to ask themselves what they can contribute to support responsible actions and sustainable production. Consumers are increasingly making purchasing decisions on the basis of their own values. ‘Clear-conscience consumption’ is a trend that’s here to stay. More and more, customers are prepared to pay a higher price for environmentally and socially acceptable products. The greater awareness people have of those problems that need to be solved, the more pressure there is on companies and on governments, because consumers are voters as well.
How do you select the fields for your commitments?
It is important to me that my personal engagement catalyses and drives forward essential social, societal and environmental projects. Apart from implementing individual projects, I also want to raise people’s awareness for particular topics, initiate ideas and get something going that others can pick up on and develop further. Merely donating money generously is simply not enough if you want to change things for the better in the long run. The guiding principle for all my initiatives and foundations is therefore that they should take fresh approaches and contribute to the sustainable development of our society. In doing so, there has to be a win-win situation for all participants. That’s the only way that these projects have a chance of surviving in the long term and creating permanent change.
Your late father, Professor Werner Otto, set standards with his social commitment. What were his criteria for selecting engagements?
My father wanted to share his great successes – including the financial ones – with others and to give something back to society. His motto was always: “People come first.” Accordingly, he used his money for many cultural projects. But the most important commitment for him was for those who are always described as the weakest members of society: handicapped children. In order to give effective help and to lessen human suffering, he created the Werner Otto Foundation in 1969. This medical foundation helps out particularly wherever the state provides no money, or does not do so quickly enough.
How has your father’s engagement shaped your own social actions?
My father was a role model for me in the sense that he stood up for the employees early on. When the company is doing well, then the employees should do well, too – that was his creed. Of course, my family has also influenced me. I was taught from the beginning also to think of others.
In the area of education, Hamburg has the Initiative for Employment, which you created, as well as the Hamburg Secondary School Model. With these, you make the path from school to a job easier for secondary-school pupils. Helping them help themselves?
Precisely. One of the central challenges in the coming years will be to make access to the working life easier for young people who have completed secondary school, in order to improve their opportunities in the labour market and therefore for a self-determined life. In my view, it’s enormously important not to leave young pupils to their own devices here. On the one hand, a timely transition from school into vocational training is very important for them. And on the other, society and business desperately need well-educated young people. The Hamburg Secondary School Model has developed here to become an outstanding concept for the seamless progression of pupils with secondary school certificates into unsubsidised vocational training. It is especially well-proven for the integration of school leavers with an immigrant background and from socially deprived areas. That’s what delights me about this project!
In cultural areas, you appear in a supportive role time and again. For example, you supported the construction of the Youth Music School in Hamburg and the Elbe Philharmonic Foundation with donations. Why is the support from private individuals so important in this area?
Supporting projects that are part of art and culture is frequently not at the forefront of public budgets. Therefore, the private willingness to help of those who can afford it financially is vitally important here. I enjoy supporting projects as part of musical education, because the unifying power of music not only serves personal development, but also supports creativity and social interaction.
Why did you create your foundations?
I am firmly convinced that every one of us should make a contribution to society, according to their means. Only then can it be vital and viable. Property entails obligations, particularly here. And gratitude that society has given you the opportunity for successful development.
It's really important to me not just to ‘do good’ as part of my Foundations. Alongside implementing individual projects, I also want to raise people’s awareness for particular topics. Every one of us has to make our contribution to preserve our world for future generations in a liveable way.
How important in general is the work of foundations? How can they be more effective?
That depends first of all on the purpose of the foundation. The effectiveness of foundation work is otherwise a question of good management.
How far are you involved in the work of the foundations?
Naturally, the amount of time I have available for the foundations depends primarily on the needs of my business. Besides this, I still need to find time for my family and friends. However, foundation work genuinely enriches me, so that I gladly contribute the time that is needed. This has also become easier since I have become the Chairman of the Otto Group Supervisory Board and have withdrawn from the operational side of the Otto Group.
I actively accompany the foundation projects and attend meetings on-site and in person.
How is the foundations’ work financed?
By an annual inflow of money that I make available. In addition, we receive public funding as well as money from other private partners − in the case of the Aid by Trade Foundation through cotton companies and the Bill and Melinda Gates Foundation, for instance.
In 1993, you first created the Michael Otto Foundation for Environmental Protection. It is dedicated to protecting water as the basis of life. What were your motives for establishing it?
Water is a resource that is becoming scarcer. The needs of people and nature meet in this topic to the same extent. I experienced this fact particularly strikingly during a journey to Africa. The gnus that populate the savannah in their thousands during their migration, can delay the timing of giving birth and wait until the rain comes. Once the savannah becomes green, it is filled at the same time with thousands of gnu calves: an impressive image with great symbolism: water is life!
The Michael Otto Foundation has defined an action field for Support, Education and Dialogue, amongst others. What exactly does that mean?
The foundation’s activities are intended to provide incentives, give food for thought and trigger an initial effect. Therefore, there are three pillars of activity: Funding, Education and Dialogue. The Foundation supports projects which directly benefit water and/or the affected habitats. It is active in the education area through establishing Foundation professorships and financial support for research and education centres. In addition, the Foundation moderates between social interest groups. It initiates conversations and offers a platform for dialogue events. As part of the Hamburg Forum for Nature Conservation or the Berlin Climate Meetings, representatives from industry, environmental protection, politics and science come together to work on pragmatic solutions for current environmental policy questions.
With Aqua Agents you are working to bring young people into the Foundation’s work. How important is it, in your opinion, to raise awareness among children and young people for such topics?
Tomorrow’s decision-makers are young people today. Their awareness deserves our particular attention. The Aqua Agents serve to protect water as a resource. The goal is to increase the own initiative of students and young people in the area of protecting nature, to increase their readiness to participate and to motivate them to change their behaviour.
In 2005, you established a new foundation, which is now the Aid by Trade Foundation. What exactly are its goals and what were your motivations?
The Foundation promotes the sustainable cultivation of agricultural and forestry products in developing countries. Many of these countries possess high-quality products, which so far have not found ready purchasers on the global market. The Foundation’s projects are intended to create the environmental, social, technical, political and economic framework conditions necessary for the production, finishing and sale of these products. The projects’ philosophy is that ‘trade can contribute towards fighting poverty’. The Foundation has also been tasked with bundling demand from industrialised countries for sustainable products from developing countries. The goal is for retail companies, together with consumers and manufacturers, to trigger permanently effective improvement stimuli through a targeted Demand Alliance. This innovative approach is orientated toward the market and aims to become financially self-sufficient in the long term.
The Cotton made in Africa initiative is currently one of the largest public-private partnership projects in German development cooperation and is carried by your foundation. What is the goal of the initiative?
The initiative stands for my convictions and core attitude. Every one of us can take on responsibility within our own capabilities. For me, that means promoting helping people to help themselves.
Together with industry, the German Federal government and non-governmental organisations, the Aid by Trade Foundation intends to create better and more reliable sales opportunities for African cotton as part of the Cotton made in Africa initiative and to fight poverty in the cotton-growing regions of Africa by targeting demand. The goal of the initiative is to support African smallholder farmers in producing cotton in line with sustainability criteria in a particularly efficient way, helping the farmers to achieve higher crop yields and thus a better income. At the same time, through a Demand Alliance organised by the Foundation we want to provide sales opportunities for this cotton on the European market. From the licence fees for Cotton made in Africa, the Foundation pays a dividend to the African cotton farmers, thereby securing an additional income for them, and supports the construction of schools and adult education. The farmers’ children therefore have the opportunity to go to school instead of working in the fields. Another focus of the project is in protecting nature and the environment: more than 450,000 cotton smallholder farmers in seven African countries are currently being trained to improve their cultivation methods and yields and therefore achieve higher income.
Are you not at all tempted to go into politics? Or are entrepreneurs better world managers?
I am looking forward to pursuing my own projects, now that I have more time. This includes my engagement for climate protection as part of the 2° Foundation and my Aid by Trade Foundation, for example. I can do something worthwhile here. It’s also political, if you want to put it like that.
In 2007, you gave up being CEO of the Otto Group and switched to the Supervisory Board. When will another member of the Otto family head up the Group again?
I don’t think much of the role of the ‘patriarch who can’t let go’. For me, it was always clear that I would stop being CEO at a point in time which I determined myself. In the Otto Group we place a lot of value on the continuity of business management. By this, I don’t mean that a family company must be managed by the family at every point. To arrange the transition in leadership with non-related managers increases the freedom of action for all participants. I therefore define a ‘family company’ more through the company’s culture than the ancestry of its corporate management. In between my father and me, an unrelated manager also led the company. At the moment, Mr Schrader fills the role excellently. That will remain so until he retires. Whether my son will one day take over as Chairman of the Executive Board remains to be seen. My son has only been working in the Otto Group since 2012 and before that, he was self-employed. I am not putting any pressure on him; he will decide for himself whether, when and how he wants to take the next step in the company.
When discussing a possible succession, only your son is ever mentioned, never your daughter. Why?
My daughter has decided that her work lies in development aid. She therefore ruled out succeeding me in the management of the company.
You have experienced the development of the company from the beginning – from poverty after the war to its rapid ascent. Would you have acted differently in society if you had been born as a rich son from the start?
I can’t say. In any case, my family history has shaped my thinking and acting. When we landed in Hamburg after the war, we were bitterly poor. Hunger was part of every day. As a boy, I had to make my own way with all sorts of casual jobs. I think that was good and important for me and influenced my later entrepreneurial activity strongly.
How did you mould your own children in terms of engagement?
It was always important to my wife and me in bringing up our children that they had respect and tolerance towards other people. That they, if they work in business, should never expect more from another person than from themselves, so that they always take themselves as the yardstick. That they also do something for society and not just make demands of it. If we only ever claim our entitlements and never participate ourselves, then our society doesn’t function.
You love nature, and enjoy travelling off the beaten track in foreign lands. Luxurious hotels aren’t your thing, are they?
That is indeed the case. I love adventures in nature. With the people there I find a unique relaxation that I can find nowhere else. I can leave the stress of the daily routine, reflect on my life and come back to earth with both feet on the ground. The value of this is immeasurable. That’s why I would rather ride a horse into the Tian Shan mountains in Kyrgyzstan, or travel with a caravan through Mongolia, than lie by the poolside in a 5-star hotel.
Over the years, you have received many important awards, especially in the areas of management and environmental protection. How important is this to you personally? How critical is it to your work?
I see the awards as recognition of my engagement and as an honour, but at the same time as recognition of the work of my employees. The awards are an additional motivation for things I would do anyway.
What makes you feel happy in general – and is there a conflict with a sustainable life?
My happiness in life is my family. As an entrepreneur, it makes me happy to see the group of companies grow and flourish. Both of these can be brought into harmony very well with a sustainable life. When I travel, it’s not to get a change of scenery, as we like to say, but rather to meet and understand other cultures and ways of life.
Are you ashamed of behaviour that damages the environment?
I'm not ashamed, but I do think very carefully about my behaviour, whether all of it is always necessary and advisable and whether it justifies the price which the environment may have to pay.
What stops you from living in a more environmentally friendly way?
Entrepreneurs have to be flexible, mobile and fast − that applies to the big ones as much as to the little ones. What actually stops me from behaving in an even more environmentally friendly way than I already do is the fact that particular technologies just don’t exist in the market yet which enable us to maintain speed and flexibility on a significantly more environmentally conscious level. Take for example electric cars. The technology is great, but by no means mature enough to be able to replace others wholesale. Above all, it doesn’t let you cross the Atlantic.