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Calling In a Non-Family CEO

By Craig E. Aronoff, Ph.D.

After graduating from a top business school and three years of successful employment at a major customer, he joined his family’s business. By age 30, he headed a major new product launch. At 35, he was named to the board of directors; at 43, he was COO and at 44, he was named president and CEO. Viewed by some as a member of the lucky sperm club, he insists, “Any achievement I made was because of my hard work. I had to work twice as hard for half the credit, just because I have this last name.”

Despite his success, in many ways he faced challenges unique to leaders of family firms. His father had presided over the company during a prolonged period of tremendous growth. Still serving as chairman at 74, the elder family member doesn’t hesitate to send handwritten notes—positive and negative—throughout the company. The son is described as “dressed conservatively…quieter and considerably less flamboyant than his charismatic father.” The same newspaper article further describes the father as “gregarious and charming, always turned out in impeccably coordinated outfits” and comments on his “natural salesmanship…twinned with great intensity and drive.” Moreover, the father still enjoys a larger office than his son.

The son seems to have all the problems of a family business CEO following larger-than-life family leaders who went before him (his grandmother founded the business and was a celebrated rags-to-riches story).

The business now experiences heavy strategic challenges, due particularly to consolidation among its customers. Family owners disagree about what to do and are in conflict about acquisitions. An uncle wants to cash in stock to fund other investments and his art collection. The CEO puts in long hours at work, but some family shareholders feel free to call him at home anytime. It isn’t easy, he says, to have board members who remember you as a child.

These circumstances are not uncommon in family businesses. The family business being described here, however, is not just any family business. It is Estée Lauder, and the CEO son is William Lauder, 47, third-generation CEO. He has decided for company and personal reasons to step aside as president and CEO and has hired Fabrizio Freda from Procter & Gamble to take his place. Freda became president on March 3rd with a contract that calls for him to become CEO in 24 months. While company veteran Fred Langhammer was a bridge CEO between Leonard and William Lauder, Freda is the company’s first outsider to serve in such a high leadership position.

William Lauder said that “this is a company built on for the most part the ideas of a small group of people and they’re all named Lauder. It became clear to me that I needed an outside person to be the agent of change.”

From a personal perspective, Lauder told the Wall Street Journal, “Leading a public company is a sentence, but leading a publicly held family-controlled business is a life sentence. I didn’t want to be taken out of here feet first.”

Estée Lauder remains family controlled. William will probably succeed his father as chairman. Cousins Aerin and Jane are rising executives. The family controls 84 percent of voting stock.

Looking for top-notch talent outside of the family business often makes great sense when the company faces unprecedented challenges and when family leaders believe someone else can do a better job.
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