As pressure continues to build at Avon Products Inc. and investors grow increasingly impatient, the beleaguered direct seller could have a new chief executive officer in place by its annual shareholders meeting in May.
This story first appeared in the February 17, 2012 issue of WWD. Subscribe Today.
Momentum seems to be building in the firm’s search for a new ceo, with HSN ceo Mindy Grossman continuing to dominate industry chatter about who may be the lead candidate. On Dec. 15, WWD first reported that Grossman was seen as a candidate. Other names have surfaced as well, including former Gap Inc. ceo Paul Pressler, and former Estée Lauder Cos. Inc. group president Patrick Bousquet-Chavanne, who also sits on HSN’s board. Both Grossman and Bousquet-Chavanne dismissed the talk with “no comment.”
One name industry watchers can cross off the list is former Procter & Gamble Co. veteran Ed Shirley. The former beauty and grooming executive cited P&G’s non-compete policy as the reason that he has not thrown his hat into the Avon ring, although he would have liked to. “I have not talked to Avon because of this,” he said in a telephone interview Wednesday evening. “It’s a great brand. There is a lot going for it, particularly in the emerging markets, where the company plays.”
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Plans call for Avon’s chairman and current ceo Andrea Jung to assume the executive chairman role once a new ceo is in place.
“Names are being thrown around heavily that it leaves me to believe Avon is interviewing people,” said Sanford C. Bernstein & Co. analyst Ali Dibadj. He credited Avon’s newly installed executive vice president and chief financial officer Kimberly Ross for addressing Avon’s most vexing challenges during the company’s earnings call on Tuesday but cautioned, “The problems that she laid out are right, but they run deep.” Dibadj said he was amused that Ross — a mere 10 weeks into the cfo job — was able to identify problem areas that management has been unable to pinpoint and subsequently address. Referring to Avon’s recent call to improve its top-line performance and to cut costs, he said, “There’s definitely motion, but it’s rudderless motion until a new ceo is named.”
Many expect the ceo announcement to come soon. “Avon will delay its first-quarter strategic update until a new ceo is on board, which we think will be soon,” wrote Caris & Co. analyst Linda Bolton Weiser in a note Wednesday. An incoming ceo, as several analysts said, could scrap the findings from Avon’s current operational review and start from scratch.
The new hire will likely have to hit the ground running, said industry consultant Allan Mottus. “If Avon drifts it’s going to get worse.…The beauty industry is dramatically changing and changing very quickly.”
Deutsche Bank analyst Bill Schmitz wrote in a research note released Tuesday, “Beyond the operational missteps and corruption charges, the biggest disappointment has been Avon’s inability to convert earnings to free cash flow. While the stock is clearly cheap and we believe risk-reward is highly favorable here, free cash flow needs to catch up with earnings, and not vice versa, for investors to really get excited.”
Kate Benson, president of the executive consultancy Martens & Heads, said searches for high-level ceo posts typically take at least three to six months. Avon presumably began its search in earnest in December when the company announced it would split the role of chairman and ceo into two. As for what type of person is right for the job, Benson said, “I’m a big fan of transferable skill sets. As long as the person has had success elsewhere it’s better than what Avon has now. You need someone who understands the difference between direct selling and where [he or she] comes from.”
In her view, the right candidate is “someone who is adept at galvanizing people and articulating a vision throughout the global ranks. A vision is something that people talk about very glibly but not everyone has the ability to create it.” The incoming ceo also will be tasked with restoring morale — Avon reported Tuesday that in the fourth quarter its active representative base fell by 3 percent. Benson said that will come with successfully implementing changes that get the company back on track. “[Low] morale is something that is a by-product of failure.” She suspects Jung’s continued presence on Avon’s board will be an important topic of conversation for any lead candidate.