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Thoughts of the Week

By Jeffrey M. Weiner, Managing Partner, Marcum LLP

Thoughts of the Week
 

Ride 'Em, Cowboy

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Ride 'Em, Cowboy
 

While politics continued to dominate the news this week, with the White House contenders still battling it out here at home and President Obama battling it out with Vladimir Putin at the U.N. (which, technically, is not a U.S. territory), another development made the front pages of the national and international business press. On Tuesday, Ralph Lauren announced that he is stepping down as CEO of the fashion empire that has personified the American apparel industry for almost 50 years.

What made the announcement so compelling - aside from the fact that the 75-year-old Lauren has been the reigning dean of Seventh Avenue for decades - is that he recruited an outsider to succeed him as CEO (for now, Lauren will remain as executive chairman and chief creative officer). The appointment took Wall Street and the apparel industry by surprise. Lauren's son, David, who is an executive VP at the company, had been widely expected to be named Ralph's successor.

Stefan Larsson, the ascendant CEO, is no stranger to the garment industry. He is widely credited for reviving Gap's Old Navy division, of which he was global president, and also previously made his mark at H&M. But the 41-year-old Larsson is an interesting choice for Ralph Lauren, inasmuch as it will be his first go at a luxury brand. Ralph seems to feel that Larsson has what it takes, and it's hard to imagine that he would hand the reins to anyone he did not have complete faith in. Especially since he still holds 81% of the stock.

Clearly, the house of Ralph Lauren was not built by a stupid man. It was built by a man who had the chutzpah to start a business in a rented closet in the Empire State Building in 1967. Over the past 48 years, Lauren expanded his brand into nearly every corner of the fashion and home furnishings world, generating more than $7.5 billion in global sales last year. This year, however, has been tougher going, with company shares falling 44%, or $5 billion, as of Tuesday. The immediate market response to the announcement was just what the doctor ordered, with shares closing up 13% to $118.16 by end of trading Wednesday. It would seem that the combination of an accomplished young leader with a strong track record of growth, and the continuing creative involvement of the face of the brand, has given the company a fresh jolt. At least for now.

One retail analyst described Ralph Lauren Corp. as a "poster child of stability" that "has historically grown talent from within." This would certainly suggest that Lauren's decision to by-pass his son and look outside the company for a successor was not made lightly. Lauren himself told the Wall Street Journal, "It's a public company, and we have a responsibility to have the right leadership."

That is the key to the whole thing right there. Although history will ultimately be the judge of whether Lauren made the right decision, there is a universal lesson here that applies equally to entrepreneurs and owners of successful family businesses who are wrestling with the complexities of succession planning. It's a situation that we counsel clients on continuously, as closely held, middle-market enterprises are the mainstay of Marcum's business.

What we advise our clients is that succession planning is an ongoing effort to ensure that a successful business, of any size, can continue to benefit its owners, managers, employees and other stakeholders well beyond the current generation, and to ensure that the business can withstand changes when they inevitably occur. A complete succession plan will provide for a smooth transition when either ownership or management decides it is the right time to retire, fully or partially (ala Ralph Lauren); when equity owners and key managers pass away; or when any other crisis of leadership occurs. The goal is continuity of the business enterprise, while ensuring that all the needs of ownership and management are met.

Marcum is privileged to serve clients around the country who face these challenges and others, in planning for the successful future of their companies. We are honored to be their trusted advisor, and frankly, we relish the results when they see their plans in action.

It will be very interesting to see what the future holds for Ralph Lauren Corp. under Stefan Larsson and how the company and the market will handle it when Ralph ultimately transitions out of the company altogether. I suspect all of Wall Street and Seventh Avenue will be watching to see how the cowboy ultimately rides off into the sunset.



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Disclaimer

The opinions expressed in this column are solely those of Jeffrey M. Weiner and do not represent those of Marcum LLP, its partners or its employees.

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