The shareholders of LVMH, Moet-Hennessy Louis Vuitton voted Thursday for Bernard Arnault’s continued leadership of the luxury goods company. This will allow him to continue to rule until he reaches the age 85.
This move was approved by more than 99 percent of the voting public. It raises the age restriction for the chairman and CEO from 80 to85.
The second time in the last few years that this amendment has been made.
In 2022, LVMH will raise the retirement age from 75 to 80.
The board’s decision on Thursday has cemented Arnault as the company’s leader, even though investors are growing increasingly concerned about the lack of an established succession plan.
An empire meticulously built
Bernard Arnault has been the CEO of LVMH, a luxury goods company, since 1989. He led LVMH through decades that saw aggressive growth, massive acquisitions and a surge in demand for luxurious products.
Arnault’s 75 brand empire spans the worlds of fashion, jewellery and spirits. He also owns Christian Dior, Louis Vuitton, Tiffany & Co and many more.
He has delivered exceptional returns to shareholders with his hands-on style of leadership. This includes inspecting the layout of stores, micromanaging sales, and making sure that brand messaging is consistent.
According to LSEG, LVMH generated an average annual total return (13%) under its leadership. This was far greater than the 3% STOXX600 return over the same time period.
But the qualities which made LVMH a successful company are now causing concern.
Investors are worried that Arnault’s massive influence could cause a sudden drop in LVMH’s stock price.
The company is also at risk of long-term failure due to its heavy dependence on one individual.
Facade family
The five children of Arnault are all now firmly embedded within the leadership structure.
Delphine Arnault is the CEO at Christian Dior. She’s widely regarded as one of the leading candidates.
Antoine Arnault is 47 years old and oversees Loro Piana’s image, sustainability and communications.
Alexandre (33), Frederic (30) and Jean (26), the younger of three siblings, hold key positions at Tiffany & Co., TAG Heuer and in their watches divisions, respectively.
Four of the children sit on LVMH’s board. Each holds a position in LVMH. Arnault, despite the prominence of his children, has not made any public announcements about who would eventually succeed him.
The family’s involvement gives the appearance of a tightly managed succession-in-training, yet no formal plan has been communicated.
A luxury analyst in Paris said that the market had long priced-in the “Arnault Premium”.
But that means there is also a huge key-man’s risk. Investors are interested in what LVMH will look like after Arnault.
Opaque planning fuels uncertainty
Investors have started to raise questions about the lack of transparency in the company.
Two investors have told Reuters Breakingviews they do not know of any emergency plan or succession plan.
LVMH’s latest governance report mentions “a review of succession planning” but does not provide any further details.
In order to maintain long-term control, LVMH made changes to its controlling structure in 2022.
Arnault has restructured Agache SCA to ensure that all five children will share ownership of the company through Agache Commandite.
Shares cannot be transferred or sold for at least 30 years. They also can’t pass to anyone outside of the immediate family.
The arrangement ensures that LVMH remains under the family’s control in the near future. However, it doesn’t answer the question about who will be the next leader.
Agache’s five brothers and sisters must now agree on all key decisions. This could become cumbersome over time or cause a rift.
Luxury rivals offer valuable lessons
The opaque succession policy of LVMH contrasts sharply with that of other luxury family firms.
Francois Pinault founded the rival Kering group and passed on his holding company in 2001 to three of his children.
His son Francois Henri Pinault, at 42 years old, took over as CEO in 2005. This provided continuity to investors and business.
LVMH, on the other hand, has chosen to make incremental changes which extend Bernard Arnault’s control over the company while not providing a clear picture of the future.
Irina CURBELO, the co-founder and CEO of Percheron Advisory said that succession is not just about naming a new CEO. It’s all about protecting the spirit of the empire and making sure that the family doesn’t become a bottleneck.
There is no imminent risk, but there are longer-term concerns
Few doubt Arnault’s ability to lead LVMH for the foreseeable future, despite growing concerns.
The board of directors and the shareholders clearly trust him.
Governance questions will not go away with the new age limit amendment.
The stakes for an unresolved succession are only increasing as the luxury sector becomes increasingly competitive and global complex.
The question for LVMH isn’t who will replace Bernard Arnault but rather when, how and if the group will prepare itself when that inevitable moment arrives.
This post As LVMH continues Arnault’s reign, investors are still worried about succession: Here’s why.
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