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Estee Lauder’s model succession

Leonard Lauder, son of cosmetics queen Estee, is famously a fan of the cubist art movement pioneered by Picasso and Braque in the early 20th century writes Marc Smith. In cubism, the artist depicts his subject from a multitude of viewpoints by breaking up, analysing and re-assembling objects in an abstracted form.

Leonard and other members of the Lauder family have been doing something similar with the management of Estee Lauder Companies of late, culminating in the announcement last week of the accession of non-family member Fabrizio Freda to the CEO position.

While some succession plans can happen in the blink of a perfectly mascara-ed eye, the Lauders have been planning theirs – officially at least – since November 2007. Such attention to detail not only gives the family and management the best possible chance of making the transition a success, it also serves as a model that other families could do well to follow.

The company was founded in 1946 when Joseph Lauder and wife Estee began producing cosmetics in New York. The business grew into an international concern after son Leonard formally joined the company in 1958 when it had annual sales of $800,000. During his time as president (1972 to 1995), CEO (1982 to 1999) and chairman (1995-2009), he introduced professional management on every level and launched many brands including Clinique.

Third-generation William P Lauder joined the business in 1986 and has served as group president, COO and CEO since 2004. Today, Estee Lauder has sales of nearly $8 billion but in late 2007 the decision was made to hand over operational running of the business to Procter & Gamble veteran Freda within a two-year timeframe. The succession plan was brought full circle with William replacing his father Leonard as chairman of the board of directors.

For a family and a company so closely entwined with beauty and being in the limelight, it was a remarkably modest and honest assessment which led the family to decide that professional management was needed to take the business to the next level.

Crucially, however, Freda wasn't handed the keys to the company and left to get on with it. Following the November '07 announcement, he was given the roles of president and COO, while William continued as CEO. This breaking-in period enabled both family and non-family to get to know each other in a working environment.

"Fabrizio is a superb leader. In just one year, he has done a tremendous job in leading the implementation of our company's long-term strategic plan," William commented last week. But the transitional period wasn't just about assessing Freda's business credentials; it was also about learning whether the family felt they could trust the running of the 63-year-old company to an outsider.

Freda clearly believes he has passed this litmus test of family business. "I'm pleased to have gained the confidence of the Lauder family, the board and, most of all, the company's greatest asset, its more than 30,000 employees worldwide," he said last week, echoing Leonard's comment that he was "a perfect fit" with the family company's culture.

The new structure will officially take effect on 1 July this year and it is now up to William and Freda to work together to create significant long-term shareholder value. Given the year that they have spent in tandem and the warm words exchanged between them, the transition has the best possible chance of succeeding.

The family, through William, is able to retain its influence by chairing the board through which it can be an ambassador for the brand and its values, while Freda knows he has their backing to make the business successful. "I have every confidence that Fabrizio and William will make this leadership transition seamlessly," said Leonard.

Like a cubist painting, succession can seem like an incompatible mixture of shapes and viewpoints that will never come together as a whole working entity. The Lauder family has taken the time to boil it down to its essential elements: finding a suitable, long-term role for the family and a talented executive they trust to run the business. Mixed in with constant, clear communication this has all the hallmarks of a succession masterpiece in which Estee herself could well have found an aesthetic beauty.

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