Founder Ralph Lauren’s Second Attempt at CEO Succession: What We Can Learn

CFEG COMMENTARY

Over the past year and a half, Ralph Lauren Corporation and its namesake Founder have brought on two successive CEOs to replace Mr. Lauren. Replacing a Founder-CEO is one of the most challenging quests for a first-generation family business, and for good reason. A Founder has enormous influence, is central to decisions, and is emotionally committed to the organization. Replacing a Founder-CEO can seem insurmountable, and sometimes requires multiple attempts; but the missteps in hiring the right successor to a Founder can be as avoidable as they are predictable.

Ralph Lauren’s First Successor

In November of 2015, Stefan Larsson was named CEO of Ralph Lauren, a title the Founder had held for 50 years, since his early days selling men’s ties for Beau Brummell.

The appointment of the 42-year-old Mr. Larsson, who had previously helmed Old Navy, seemed less like a carefully planned and thoughtful transition and more like a panicked reaction to the fact that Ralph Lauren’s stock had lost half its value. It had clearly been slow to respond to the changing fashion habits of the rising Millennials (Generation Y), and Mr. Larsson’s track record in fast-fashion and cost cutting was expected to reverse the company’s downward course.

And yet now, less than two years into his tenure, Mr. Larsson is out over what has been described as a disagreement with the Founder over “creative direction.” In his place, the company has tapped luxury brands veteran, Patrice Louvert, who has overseen lines like Gucci and Hugo Boss.

What Went Wrong?

In retrospect, it’s clear that Mr. Larsson and Mr. Lauren did not share the same company vision, something so essential to a firm’s success that it should have been extensively explored and vetted before the hire. The organization seems to have lacked alignment between the Founder, CEO, and senior management around the changes Mr. Larsson implemented; many senior executives, uncomfortable with the company’s new direction, departed. A surprise talent exodus is almost always a sign of the wrong CEO. And who’s to say what other factors could have influenced the decision.

What could have been done differently?

5 Lessons for Founder Succession

1. The board of directors must actively lead the CEO transition process, and should start early. A successful succession process typically takes 5-7 years, and is strategically and objectively led by the board.
2. Fit is essential. The successor needs to embrace the owners’ (particularly the Founder’s) goals and standards for the company, and have the skills and experience to lead the company where it needs to go in the future. It is absolutely essential that the CEO’s character, personality, and values fit with the Founder and family, and that the CEO has the ability to be the right ambassador for the family and company. And it helps enormously if the family actually likes the new CEO.
3. The successor to a Founder needs to really appreciate what the company has done well so far. When the incoming CEO comes in believing that intelligent life in the company starts with him/her, it is usually a derailer. Simultaneously, the new CEO is going to make changes so the company can achieve its goals­; these could include disrupting operations, replacing or adding talent, and possibly upsetting some people in the company. The new CEO has to recognize the sensitivity of making substantial changes to the Founder’s “baby.” This is especially true when the changes being made are directly in the Founder’s key value-added capabilities, such as Mr. Lauren’s talent at crafting an aspirational luxury brand and shaping the future of the company.
4. Many Founders move to the Executive Chair role to keep an eye on the new CEO. The Chair of the Board role must have a clear mandate that is supported by the board. This role is not a disguised title for hanging on to the CEO position, which would undermine the incoming leader. Rather, the Chair of the Board must provide high-level aerial cover to the new CEO as s/he engages in changing the organization. The Chair of the Board must believe in the change tactics that the new CEO is implementing. Without this, there is not only a lack of support for the new CEO, but no reason for other people to treat the new CEO seriously.
5. Routinely connect the new CEO to the owners and family. Encourage a two-way dialogue. The CEO needs to understand what the owners value, deeply cherish, and want their company to achieve. While the board can convey some of this, face-to-face, regular communication with the owners and family helps a great deal.

So, yes, Founder-CEO transitions are complex and challenging, and they have the potential to either bolster or cripple a business. But, if done deliberately with foresight, time, transparency, and an alignment of purpose they help family companies build shareholder value, sustain growth­, and maintain momentum–three goals that never go out of fashion.

Note: All information about the leadership transition at Ralph Lauren Corporation was obtained from public sources.