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Andrea Jung to Cede CEO Title at Avon

The beauty firm's long-time leader will serve as executive chairman once a replacement is found.

Avon’s “management issue” may be coming to an end.

Andrea Jung will step aside as chief executive officer of Avon Products Inc. next year and transition into the role of executive chairman once a successor is found, the company said Tuesday evening.

The move separates the offices of chairman and ceo, both of which Jung currently holds, and responds to Wall Street’s concerns that the longtime beauty executive has lost her ability to foresee obstacles. Jung has been Avon’s chairman and ceo for 12 years.

One industry watcher said the news of Jung exiting the ceo role is not surprising and stressed that her successor should be well versed in the direct-selling arena, not the consumer packaged goods one.

“This isn’t about loading docks or trucks or the supply chain. This is a direct-sell fix. The company isn’t broken, it’s folded its cards. I refuse to believe the Avon model is irrelevant,” the observer said.

Avon’s board plans to work with Jung as it searches for a new ceo.

In a telephone interview at press time, Jung said Avon has grown so much during her 12 years as ceo as well as her 18 years with the company that it was time to find a new operational leader with “a fresh lens” to take the company “to the next level.” Asked if her decision was influenced by the company’s poor results and the Securities and Exchange Commission investigation, Jung flatly replied “no.” She reiterated that it was simply time to find “the next great leader” and she completely dismissed speculation on Wall Street that she had “checked out” five years ago when the business began to deteriorate. Jung emphasized that she is determined to play a constructive role as executive chairman in imparting her knowledge to the new ceo. She pointed out that Avon has an array of dynamics that must be harnessed, including the largest sales force in the world. She’s also dedicated to furthering a gamut of women’s health and welfare issues, such as domestic violence.

Above all, Jung said she will devote the next two years at least to help the new ceo “do whatever it takes to get the company back on track.”

Fred Hassan, managing director and partner at private equity firm Warburg Pincus and Avon’s lead independent director, said: “Avon’s board of directors fully supports Andrea and appreciates her commitment to continue to serve the company as executive chairman and assure a smooth and successful management transition. Separating the chairman and ceo roles as well as strengthening overall management capabilities are important steps to help the company capture its future opportunities. The board looks forward to continuing to work closely with Andrea and the new ceo to put the company back on a growth track.”

An Avon spokesman said the proposal to separate the ceo and chairman functions was made by Jung and the board supported her. She will continue in both roles while the board pursues an outside search for a new ceo. Once the new chief has been selected, Jung is expected to enter a two-year contract as the new executive chairman. That contract could be extended in the future, the spokesman pointed out.

Avon’s stock rose 6 percent to $17.10 in after-market trading.

The decision to split Jung’s roles comes after a series of major missteps by the beauty brand that has resulted in weakness in major developed markets, stumbles in key developing regions and questions over corporate governance issues, including investigations by the SEC regarding the company’s dealings with Wall Street analysts and its compliance with the Foreign Corrupt Practices Act.

The news of Jung’s move comes two months after a regulatory filing that the SEC had issued a subpoena on Oct. 26 requesting information regarding the company’s “contacts and communications with certain financial analysts and other representatives of the financial community during 2010 and 2011.” It was the second SEC investigation into the company’s activities, the original being in June 2008 regarding compliance issues on its international operations. The news of the Oct. 26 subpoena came on top of a disappointing third quarter where, for the period ended Sept. 30, income declined 1.5 percent.

For the third quarter, total revenues rose 5.7 percent to $2.76 billion from $2.61 billion. Revenues included a 4.9 percent gain in sales to $2.71 billion from $2.58 billion.

For the nine months, income attributable to Avon rose 36.4 percent to $514 million, or $1.18 a diluted share, from $376.8 million, or 87 cents, a year ago. Revenues rose 7.3 percent to $8.25 billion from $7.69 billion.

Jung has been under growing pressure given Avon’s performance. Analysts who participated in the company’s third-quarter earnings call in late October described the results and news of the SEC probe as “unfortunate” and “frustrating.”

Jung, in response to a question from an analyst during a conference call on why investors should believe that management has control over the business, said, “Right now, our focus is to fully review every aspect of this business market by market and role by role.”

Looking at that statement in retrospect makes for jarring reading, considering the events of Tuesday. Jung has been near the top of the corporate mountain for more than a decade as she reshaped, expanded and redefined Avon as a company that was on a mission devoted to helping improve women’s lives. As results continued to improve, Jung’s profile also rose. She was consistently saluted by the business press as one of the top female executives in America.