While the succession plans of many ultra-high-net-worth families are, according to Campden Wealth’s European Family Office Report 2022, only informally agreed (19%), unwritten (21%) or still in the process of development (14%), the family running owned company which operates luxury goods giant LVMH is running on clear and transparent lines of communication.
Judging by the news that Bernard Arnault has undertaken a review and shake up of senior roles with the appointment of his daughter, Delphine Arnault, as chief executive of Christian Dior, this is a family that is openly discussing and planning for succession. Although it should be noted that while many of the headlines did relate to the promotion of his daughter, this promotion did arise as a result of Arnault promoting Pietro Beccari (the previous Head of Christian Dior Couture) to the role of Chairman and CEO of Louis Vuitton.
Delphine’s appointment has made headlines in a similar manner to that of Maria Ortega Pérez being promoted to the chair of Inditex (the global fashion retailer, which counts Zara, Pull&Bear, Massimo Dutti, Bershka and others amongst its brands) in December 2021 and raises the evergreen question of: is it a strength to keep the family business run by the family?
To a certain extent, this question comes down to whether you consider that a business would be better with external professional management or family management. Some family businesses, such as Patek Philippe clearly believe that family management is everything - “In our family, we don’t just pass the watches down the generations, we pass the whole company” - and so it is worth pondering what the benefits of keeping it within the family are.
The first point to consider is that almost certainly a family member will have worked in and understand the business. Maria Ortega Pérez, for example, first worked at Zara as a store assistant aged 23. So, promoting a family member isn’t like hiring an outsider who may not fit culturally or understand how the business really works. Although many family businesses these days are also canny enough to ensure family members get outside experience before they come back to the family business, with 64% of European families surveyed saying they expect family members to gain such experience.
Some may challenge that other people in the business also understand the strategy and culture, and of course they, as a successful business, will have many talented people, but none of them are likely to have the advantage of being able to talk to the owner and listen to them give their insight on the business in quite the same way. So, a non-family promotion is not likely to be fatal if it is a good choice, but a family promotion should have an added advantage that can’t be replicated easily because of who they are.
“Having your name above the door can mean that you feel an extra responsibility to the success of the company and engagement with it.”
Another benefit can come from the fact that – in a number of cases – the family name is the business name. Having your name above the door (as the very fine book The Branded Gentry explores) can mean that you feel an extra responsibility to the success of the company and engagement with it. Obviously that isn’t the case of LVMH, but many of the most successful family businesses do reference the family name: JCB, Warburtons, Nisbets, Dyson, Clarks in the UK.
The other main benefit cited is that a family business is often geared up to take long-term decisions for the good of the family as a whole, as a matter of pride at creation of a legacy. This point was well made by Campden Wealth’s senior director of research, Dr. Rebecca Gooch: “Effective succession planning is critical to ensuring the longevity of the family office and family legacy”. This suggests that, rightly in my opinion, those families who plan for their succession can make appointments within the family and retain a culture and value that the family decide is the one to bring success to their business. An appointment of an inexperienced individual with no understanding of a business and with no preparation for the role is likely to be a failure, irrespective of family name.
The main challenge, in my experience, for a family member taking on a lead role is the fact that they may be under pressure to address competing generation’s wishes for different things. This usually relates to the wish to have income out of the business, as opposed to investing for growth. There may also be problems regarding inter-family or sibling rivalry if one person considers that a promotion should have gone to them instead. Then there is the very real risk of making changes for the sake of it, particularly around existing advisers and stakeholders, to try to “make their mark” and which can lead to loss of culture and institutional knowledge.
The recent Campden Wealth study backs this up to some extent with the finding that while European offices feel well placed to support investment objectives (95%) and help them find advisers (81%) a lower percentage felt less well prepared to understand their post-succession roles or interfacing with trustees, a much lower percentage (73% and 76% respectively).
The challenge of being the family member taking on the role is on top of the day-to-day challenge of having to run the business once appointed. When these promotions occur and are reported on, it feels like the focus is more on it being a family appointment as opposed to the skills, experience and talent they may bring to the role. Running a large international business and making decisions about its future can’t be easy at the best of times, but being able to do so with the support of your family and being able to call on the previous owners and leaders because they are family must be an advantage in an increasingly complex business world. We should judge the success of the appointment, ultimately, by the success of the business (as judged by its own stated objectives) and not whether the surname of the people running it are familiar.