Leonard Lauder Reveals Succession Time Frame

The other shoe dropped in the Estée Lauder Cos. Inc. management succession drama Friday morning, when Leonard A. Lauder declared that he plans to step down as chairman in two years and take on the role of chairman emeritus, clearing the way for...

The other shoe dropped in the Estée Lauder Cos. Inc. management succession drama Friday morning, when Leonard A. Lauder declared that he plans to step down as chairman in two years and take on the role of chairman emeritus, clearing the way for his son William Lauder to take over.

“I certainly hope William can succeed me as chairman,” Leonard Lauder told shareholders at the firm’s annual meeting at Manhattan’s Essex House, referring to his son and the firm’s current president and chief executive officer. Following the meeting, Leonard Lauder said he has held the chairman post for 12 years, about the same period of time that Estée Lauder, his mother and the company’s founder, had occupied the role. In 2009, Leonard Lauder will be 76 years old and wrapping up a career of hands-on management that spanned 51 years.

The announcement comes on the heels of the news that the family-run beauty firm has reached beyond its surname and outside the world of prestige beauty to recruit Fabrizio Freda, until recently president of the Global Snacks division of Procter & Gamble Co., as the beauty group’s next president and chief operating officer, with plans to promote him to ceo within 24 months. If all happens according to these plans, Freda and young Lauder will be working in tandem as ceo and chairman.

At Friday’s meeting, William Lauder said of his planned successor, “He will be a strong partner with me as we continue to drive profitable growth.”

“Lauder needs an operating culture and what company has a better operating culture than P&G? Freda’s appointment is a step in the right direction,” said Bear Stearns analyst Justin Hott. He cautioned, however, that two years is a long time to wait for a change at the top, given the operational difficulties that the firm has weathered during the past few years.

Hott wrote in a research note Friday, “Hiring an outsider will be perceived as an admission that Estée will focus more on operational improvements than family legacies. In addition, Mr. Freda’s P&G background should foster the belief that someday P&G could acquire the company.”

In an article that appeared on page 1, Friday, William Lauder dismissed speculation of an eventual sale, the same stance that his father has adopted on more than one occasion.

This story first appeared in the November 12, 2007 issue of WWD.  Subscribe Today.

In addition to reigniting talk that P&G may look to acquire Estée Lauder, Freda’s appointment prompted speculation from Wall Street Friday morning that the mass market consumer products veteran could encourage Estée Lauder to reenter the mass channel.

Many analysts said reaching outside the family ranks will help accelerate Estée Lauder’s international strategy. William Lauder said Friday international sales currently account for 54 percent of the beauty firm’s total sales, and he anticipates they will balloon to 60 percent to 70 percent of total sales over the next two or three years.

“Business outside the U.S. is growing three times faster than the rate inside the U.S.,” said William Lauder. He anticipates that in the next decade China, which now yields close to $100 million, could be Estée Lauder’s largest market outside the U.S., with Russia ranking in the top 10.

Over the next three years the company expects to generate annual sales growth of 6 percent to 8 percent, fueled largely by international sales.

In a research note Friday, Credit Suisse analyst Filippe Goossens stated that Freda may bring more out-of-the-box thinking, and perhaps pave the way for strategic partnerships to grow the company’s footprint.

Goossens wrote, “Over the last few years the focus of attention within the Estée Lauder organization has increasingly shifted to its international operations, which have significantly greater prospects. While [Freda] may not have a prestige personal care background — except for a short stint at Gucci — he brings with him strong brand building expertise as the former head of P&G’s international snack business, as well as the organizational discipline of P&G.”

Now as Leonard Lauder contemplates stepping down as chairman in two years, he is pondering the future. When asked if this could be construed as the beginning of the end of the Lauder family era, he said, quite the contrary, the values of the Lauder family are more deeply embedded than ever. Referring to the management change, he said “the reason we chose [Freda] is that he is an instinctual marketer [in the Lauder mold]. You will see things happening.”

Leonard Lauder said a group of executives, such as BeautyBank president Jane Hertzmark Hudis and specialty brands president Maureen Case, have been grounded and groomed in instinctual marketing techniques and a new generation is coming to the forefront.

Lauder said stepping down will give him the time to continue traveling — “I want to go to Russia more and to China more. My ambition is to be an ambassador without portfolio.” He also plans to continue teaching marketing principles to young executives in an effort to continue the company’s legacy. “My responsibility is to see that the next generation carries it out,” he said.