How long can Richemont stay independent?
Now that a triumvirate is in place at Richemont with a powerful CEO and a new boss at Cartier and at Van Cleef & Arpels (VCA), the group’s two biggest brands, the most pressing governance question investors would like an answer to is who will be chairman once Johann Rupert is no longer there.
Rupert is 74 years old and appears to be in good shape. If he’s suddenly unfit to rule, shareholders hope he will not cling to power like some overaged U.S. politician. If Rupert had a heart attack tomorrow, who would be in charge at Richemont? His 37-year-old son Anton Rupert Junior, the one people simply call Anton?
That’s unlikely. Rupert has said several times that Anton, who bears the same name as his grandfather, would not become an executive at the group. In a Nov. 2020 call with investors on the creation of the now dissolved joint venture among Richemont, Farfetch and Chinese online giant Alibaba, Rupert stressed that Richemont was not for sale. “I have made it clear that it is neither my wish nor my recommendation that any of them (his children) will have a direct executive role such as executive chairman,” Rupert told investors, explaining the group had traditionally been run in a collegial way. “Richemont today is too complex for one individual to run,” he explained, adding that his children planned to remain shareholders in the long term.
CONTINUITY
In a 2022 interview with the Swiss newspaper Finanz und Wirtschaft, Rupert said he had a succession plan but refused to disclose details, stating that revealing it would put undue pressure on the chosen successor.
“My son has never been an executive,” Rupert said. “He has never drawn a salary or a fee, and we have stated that he will not be an executive. Anton is on the board to make sure that my colleagues can rest assured that they are not going to be raided by somebody with a short-term horizon. Anton is a mere member of the board who gives continuity and stability. And he is not planning to become an executive.”
A mere member of the board? Surely, Anton is more than that. Like his father, Anton is part of Compagnie Financière Rupert, the limited partnership that owns 10.18 percent of the group’s equity and 51 percent of its voting rights thanks to so-called “B” shares. Anton has been a member of Richemont’s board of director since 2017. He’s part of the board’s Strategic Security Committee and was on the Nominations Committee until April 2022.
Rupert said the non-executive directors on the board were aware of the succession plan and were in agreement with it. He told Finanz und Wirtschaft: “The moment you disclose it, the designated person immediately is under scrutiny beforehand. The people on the board who should know, the non-executive directors, they know who that individual is. And these directors are unanimous.”
Well, have you tried disagreeing with Rupert? That’s part of the problem with the governance at Richemont. Rupert says the company is run in a collegial manner but it’s actually very top-down, with Rupert still calling the shots on every important matter.
Since June 1, Richemont is officially run by former Van Cleef & Arpels CEO Nicolas Bos, who as group CEO directs all matters at every brand, and particularly at Cartier and VCA. His predecessor Jérôme Lambert, now Chief Operating Officer, did not have that latter power. Bos reports to Rupert and it is expected that he will likely remain CEO for many years and build a strong power base within the group. In the near future, he will make more management changes at Richemont, as Miss Tweed explained last week.
“I’m not stepping back, but I am asking Nicolas to assume some of the direct line reporting that I used to handle,” Rupert said, referring to Cartier and VCA.
The South African billionaire has tried many times to distance himself from running Richemont. In 2013, Rupert took a one-year sabbatical to read books and travel. In 2016, he told investors that his job was about managing people. “I’m an air traffic controller of egos,” he said.
One day he’s there and the next day he’s not. That’s why Rupert needs a powerful CEO to run the group.
In May, he created the Chairman’s Committee to ensure the free flow of information between the chairman and the group’s Senior Executive Committee. This committee consists of the chairman, the deputy chairman, the group CEO and the lead independent director, according to the group’s latest annual report. Richemont never replied to Miss Tweed’s email asking who the lead independent director was.
For many years, shareholders have been asking Rupert about his succession plan. No one ever got an answer. The minute Rupert is no more, the only family member who will be the group’s controlling shareholder will be Anton. Rupert may have chosen a successor as chairman, but the more pressing concern is what will be his son’s powers. If he will not be chairman, what will his role be?
VULNERABLE
Once his father is no longer there, Anton will be in a vulnerable position. LVMH CEO and controlling shareholder Bernard Arnault knows that all too well. Once the patriarch is out of the picture, it’s the time to pounce. Arnault waited for Hermès legend and CEO Jean-Louis Dumas to pass away in 2010 to make a raid on the company and build a sizeable stake. In reaction, the Hermès family banded together and created an internal shareholder structure that locked them in for three decades and effectively prevented LVMH from taking over.
If Arnault decides to make a surprise move like he did with Hermès after Dumas died, Anton does not have dozens of cousins and other family members who can rally around him. From a governance point of view, the disproportion between the power Rupert has and the size of his stake will always remain a weakness. The Rupert family effectively owns only a little over 10 percent of Richemont’s equity but continues to call the shots. Some institutional shareholders are not particularly happy about that.
Activist investors Bluebell Capital Partners sought to exploit this two years ago and use it as an argument to get board representation. In the end, their plan failed, but they made a lot of money in the process – which was their goal. Bluebell also urged the Swiss regulator to force Richemont to be more transparent and publish details of the succession plan agreed by the board — also to no avail. How long can Rupert resist shareholder pressure to keep that plan under wraps? The valuation of the company depends not only on its performance but also on who will become chairman, what his powers will be and what will be done to prevent Richemont from being a target for any potential suitor.
Arnault is quite good at finding cracks in a fortress to make it surrender. He’s a past master at exploiting disagreements between shareholders to gain control. Had Richemont agreed to merge with Kering three to four years ago when the conditions were propitious, there would not be the succession conundrum there is today. But who knows? Maybe Kering CEO François-Henri Pinault will emerge as the white knight Richemont needs to counter LVMH’s approach.
ARNAULT
Last month, Arnault revealed that he had personally taken a minority stake in Richemont. As Miss Tweed wrote at the time, if he wanted to make a bid for Richemont, he would not have let the world know about it. However, the fact that he went public about it was clearly a nudge, a way for him to let Rupert know that he was open to discussions should he be interested in an eventual alliance.
Rupert may say that the board is in total agreement with the person he chose to be Richemont’s new chairman. But what if shareholders – and people like Arnault — do not agree with his choice? If Anton is going to be Richemont’s main family controlling shareholder but have no power — as his father indicated — that situation is unlikely to hold for very long. When Anton becomes the group’s sole family shareholder, the South African scion will have some tough decisions to make.
What if Anton himself does not agree with his father’s choice of chairman for the group? Anton, who has sat on Richemont’s board since 2017, has never been allowed to build any power within the group. But as a controlling shareholder, he will have power de facto and he will be entitled to use it over any decision the group makes, including the choice of a new chairman.
Usually, a chairman acts as a counterbalance to the CEO. But at Richemont, the chairman is the person who makes most of the decisions. Arnault himself is chairman and CEO of LVMH and his family owns some 48.6 percent of LVMH directly and indirectly and has 63.4 percent of the voting rights. No one at LVMH challenges his authority. Arnault, 75, has no intention of stepping back and extended the age limit for his role at LVMH to 80 two years ago. It’s quite possible he will push it further to 85.
Contrary to Rupert, Arnault has gradually installed his children in key roles and encourages them to build legitimacy as future leaders of the group. In January, Frédéric Arnault became head of LVMH’s watches division. In April, he and his brother Alexandre, who is number two at Tiffany & Co., joined the board of directors, sitting alongside Delphine Arnault, Dior CEO, and Antoine Arnault, who is chairman of Loro Piana and in charge of LVMH’s image and environment issues. Delphine is also a member of LVMH’s executive committee. Only Jean Arnault, 26, who runs Louis Vuitton’s watches, is not yet on the board.
The fact that Rupert has not given Anton the opportunity to build a strong track record within the Richemont group puts him in a weak position. If Anton had started at Richemont in his early 20s and been properly coached – like all of Arnault’s children - he would be CEO of a brand by now or in charge of a division. Instead, in 2018, Anton helped the group buy Watchfinder & Co, which is now making losses. He was also involved in the negotiations to convince Farfetch to acquire Yoox-Net-A-Porter, which also proved to be a huge loss of time and money.
The South African scion seems to have difficulty lifting the weight of his family’s heritage and expectations off his shoulders. His father shouted at him so much as he grew up that it must have stifled his self-esteem and confidence, people close to the group say. A charming, well-educated and generous person, Anton has gotten into trouble several times in the past. In 2008, he made headlines when he crashed his father’s 1995 Ferrari F50. Ditto in 2015, when his neighbors complained about excessive noise at his home at De Waterkant in Green Point, Cape Town.
THE SISTERS
Unlike the Arnault family, Anton’s two sisters are not involved in any of Richemont’s business operations. Hanneli, 39, is a bright young lady who founded her own exotic leather goods brand called Okapi. She also set up a quaint multi-brand fashion shop in Cape Town called Merchants on Long that specializes in African designers’ clothes and accessories sourced in Africa. There is also Caroline, 41, who keeps a much lower profile than her siblings and has been involved in filmmaking and charity work.
Hanneli and Caroline are not partners of Compagnie Financière Rupert, the limited partnership that controls Richemont. This seems odd considering Rupert says he wants to empower women at his group. Hence, from a legal point of view, Caroline and Hanneli will not be able to help Anton if he is attacked. The two sisters, like Anton, have stakes in other family entities including the Anton Rupert Trust and the Anton Rupert Descendants Trust. These entities hold stakes in Reinet Investments S.C.A, a Luxemburg-based fund with interests ranging from British American Tobacco to real estate and biotechnology.
In its annual report, Richemont makes a good effort at presenting Anton, underlining “his knowledge of and insight into tech start-ups.” The group stresses that the young man “has had extensive exposure to all of the group’s businesses.” It adds: “He brings valuable insight into changing consumer behavior in digital marketing and web-based commerce.”
But it is unlikely Anton will have a strong enough power base within Richemont should Arnault make a move once his father is no longer the group chairman. And Rupert will have no one but himself to blame.
MELOS
The powerful always pounce on the weak. The ancient Greek historian Thucydides sheds formidable light on this even for today’s world. His account of the Peloponnesian war between Athens and Sparta in the 5th century BC is a must-read for anyone running a company or an organization these days.
Thucydides wrote about how Melos (today Milos), a small pacifist island in the Aegean Sea, argued that it should not submit to Athens’ rule and give it troops as asked because it was neutral. Athens responded by saying it must demonstrate its power over the Melians, otherwise it would be seen as weak. In the end, Athens killed all of the island’s men and enslaved the women and children. There is no justice between unequal powers, it argued. Might is always right and power is ultimately the only thing that matters, according to this “Melian Order.”
“The Melian Order governs the world, and it always has, since the times of Ancient Greece to Putin’s Russia and before that during Napoleon’s Europe and Hitler’s. There is no exception to this rule,”Admiral Loïc Finaz, former head of France’s War School explained during his conference on leadership at Miss Tweed’s Luxury at the Summit in Val d’Isère last year.
LVMH may not need to attack Richemont to retain its might. But clearly Arnault knows that Anton will be sitting in a vulnerable position once his father is no longer there to protect him. And he may not resist exploiting that situation to his advantage.