Employee revolt over how the founder’s son spends his money reveal the limits of inherited power. Everyone with multi-generational wealth needs to pay close attention.
Ronald Lauder has spent his life and the bulk of his inheritance giving to causes he believes in. The problem is that some of those causes are unpopular.
Dozens of Estee Lauder employees have protested his support for Donald Trump’s reelection. Thousands of customers have signed a petition demanding that the company divorce itself from Ronald, whose mother built the company.
His family name is on the logo. Their work and consumption patterns keep the name relevant. Who wins?
Sound and fury
This particular boss’s son isn’t going anywhere without a fight.
Unlike a lot of billionaire dynasties content to sell out and let paid managers call the shots, the Lauders structured their company to preserve 73% of the voting stock for themselves.
Another 12% of the stock is controlled by a close family ally on behalf of Lauder trusts as an additional insurance policy. The family votes as a bloc to keep at least four Lauders and their delegates on the 16-person board of directors.
Ronald is one of those family representatives. To remove him against his will, activists would need to convince the rest of the family to vote him out.
When push comes to shove, Brother Lawrence still holds the keys to the kingdom. On paper, he’s only chairman emeritus, giving son William a chance to formally run the board. In practice, he wields 54% of the votes.
As long as Lawrence is happy, it’s mathematically impossible for Ronald to go anywhere. The family will keep nominating him when his term expires. Then they’ll vote him back in.
People trying to punish the company for Ronald’s political donations are not going to get what they say they want.
All they can do is embarrass the company, demoralize employees and irritate the icy calm of the index funds that own most of the outside stock.
This is not a boardroom battle. It won’t get that far. When the only possible successful outcome is to depress sales and push the company off conscience screens, it’s really just a stealth boycott.
If anything, the resistance probably only gives Ronald the will to stick around a little longer. He’s 76. He was actually happy to avoid boardroom politics until stepping in when one of his daughters quit four years ago.
His other daughter is already on the board. When Ronald goes, the family is going to need to find someone else to represent their interests.
It’s a nice ironclad structure that will continue as long as there are Lauders willing and able to steer the company. Even if a family member needs to sell stock, they have to offer it back to the family first.
Compare that to any number of family businesses where outside investors take over and ultimately force the heirs out of the company that bears their name. When the family is the brand, it leads to dilution and often disaster as well.
The Waltons have only the slimmest margin of control over Walmart, for example, and they have to present a completely unified front in order to wield it effectively. It’s no longer Sam’s empire.
Estee Lauder, on the other hand, is still overwhelmingly the house that Estee built, her grandchildren guide and her sons control. They all seem happy to be there. Sooner or later all independent Lauder ventures gravitate back to the center.
For the activists to hurt Ronald, they need to raise such an enormous stink that it drives a wedge between the brothers. No amount of agitation will have any effect otherwise.
And with the stock climbing since the petition went public, they just aren’t getting that kind of traction. Unless Lawrence is facing absolute disaster, he has no reason to bend the family rules and force his brother out.
Index funds don’t really care. They’re forced to hold a certain position in Lauder shares to make their models work.
Conscience funds can shun the company, but their market impact is limited. The whole ESG approach is more about maximizing perceived impact for the investor, not about making the biggest impact on corporate governance.
So unless the petitions drive the public away from Lauder products, spawn a full-fledged employee revolt or make Ronald so sad he quits, the activists are wasting their time on that particular demand.
They have to be aware of that. What do they really want?
Follow the real money
The petition also wants a $5 million donation to civil rights organizations. That’s something Lauder leadership can really ponder.
If the pattern of the company's charities needs review, they'll review it and come up with a PR-friendly solution.
But I don’t know where the activists got that amount. It’s rhetorically linked to the money Ronald has donated to Trump PACs and other political funds, but it still seems more than a little arbitrary.
The company pays Ronald well above $1 million a year simply for sitting on the board. Ironically, other family directors receive a lot more, so purging him wouldn’t free up any cash at all.
And Ronald doesn’t really need the money. While he has spent down his equity in the company over the years, he still receives about $18 million a year in dividends alone.
Admittedly, most of his stock has been pledged to secure loans and otherwise liberate cash in advance, but while he’s leveraged, he isn’t exactly desperate.
The board controls dividend policy. Lawrence will make sure Ronald can pay his bills because that’s a huge source of his family’s cash flow as well.
If he wants to sit on the board and collect a little more money, that’s practically incidental. The important thing is keeping the stock in the family.
Even then, Ronald only controls 6% of the stock. Lawrence has all the family cards. When he dies, that commanding hand goes to his son.
In the meantime, Ronald can use his money however he wants. He hasn’t taken it directly off the corporate balance sheet to fund his favorite political causes. It’s his cash.
All the activists can do is try to shame him. I don’t think that’s going to work.
Now apply all of this to your wealthiest and most dynastically minded clients. If they become a social media target, how vulnerable are they?
Some families want a structure in place that protects them from having to deviate from what they believe in when those beliefs become unpopular.
Other families get torn apart when those beliefs are forced into conflict with financial self-preservation and fraternal duty.
That's probably the worst scenario. It leaves corporate and emotional wreckage behind.
